Latin America, country by country

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Markets in the region range from emerging economic powers to small, resource-rich nations that can be surprisingly business-friendly or present major obstacles to investors

Argentina

While Argentina has natural resources and a well-educated workforce it often exemplifies some of the challenges of doing business in Latin America. At the top of the list is legal and governmental instability. Although the days of coups are over, populism is on the rise and the rules can change without warning.

“Certain Argentine governments (like the present one) continuously change the rules of law, and then there is no legal security,” says Pablo Pinnel of Abeledo Gottheil Abogados. “The present investment environment in Argentina until the next change of government happens in December 2011 is not good.”

In the past few years the government has nationalized utilities and pension funds, reorganized state-owned companies and set minimum prices for a wide range of goods. It has exercised control over retail prices of fuels, banned exports and cut subsidies.

“Nobody wants to invest in a factory that you have to abandon in three months. You just don’t see that,” says Alberto Lasheras-Shine, a partner with Estudio Beccar Varela Abogados in Buenos Aires.

Another downside is the famously volatile economy in which “years of high profits may be followed by hard times,” says Juan Javier Negri, a partner at Negri & Teijeiro Abogados in Buenos Aires.

Adding to this problem is inflation, which has been impossibly high for decades. “People have to spend because they don’t trust the banks,” says Lasheras-Shine.

Companies in Argentina have limited access to international financial markets because the government is “still technically in default of its debt”, say Julio Martinez and Sebastián Maggio of Mitrani Caballero Rosso Alba Francia Ojam & Ruiz Moreno Abogados in Buenos Aires. “Local lending remains mostly short term, as access to long-term financing is limited, interest rates are high and borrowers are reluctant to borrow long-term at floating rates or under credits denominated in hard currencies.”

Regulations also make it expensive to invest. For inflows of foreign currency, a mandatory interest-free deposit of 30% often applies. The deposit has to be kept in an account in Argentina at no interest.

Despite all of this there are more than 1,000 foreign companies in the country, including about half of all Fortune 100 companies.

Bolivia

The biggest concern here may be legal uncertainty following the enactment of a new constitution in February 2009, which dictates that new laws must be introduced to govern sectors like mining and infrastructure.

Jindal Steel & Power signed a contract in 2007 to invest US$2.1 billion to develop the El Mutún iron ore mine in Bolivia. This project was reported to have run into trouble, some of which was attributed to changes that resulted from the new constitution.

A new mining law is expected “and there is ongoing debate as to its scope and content. Fundamental aspects are yet to be defined,” says Fernando Aguirre, a partner at La Paz-based Bufete Aguirre Abogados. There is also a new hydrocarbons law in the works, which would affect investments in oil and gas. Other laws would cover water rights, general investments, taxes, forestry, telecommunications, energy and transport. A new labour code may affect already strict employment laws.

“One can expect that in the course of 2010 some basic ‘rules of the game’ will be better defined,” says Aguirre.

Still, the government seems aware of the need to industrialize some sectors, particularly its large lithium reserves, and develop joint ventures.

“Bolivia currently has a controlled inflation level. The fiscal deficit has decreased significantly over the last few years and the general investment environment remains stable in most areas,” said Eduardo Quintanilla Ballivián of Quintanilla Soria & Nishizawa in La Paz.

Other well-reputed law firms in Bolivia include Guevara & Gutiérrez, Moreno Baldivieso, and CR&F Rojas.

Brazil

Brazil, the biggest market in the continent, is not cheap or easy. But it is attractive. The country has about a fifth of the world’s supply of fresh water. It has fertile land and produces ethanol from sugarcane at prices competitive with petrol. In addition, businesses are gearing up for the football World Cup in 2014 and the Olympic Games in 2016.

“In the past couple of years, Brazil attracted twice as much foreign investment as India and was the world’s third biggest raiser of investment capital via equity issues after the US and China,” said Ubiratan Mattos, a partner at Mattos Muriel Kestener Advogados in São Paulo. In July, two-way trade between India and Brazil topped US$4.3 billion.

Brazil has grown despite a difficult regulatory environment, high taxes and labour laws that are tilted towards the employee, says Gustavo Haddad, a lawyer at Lefosse Advogados, a firm that works with Linklaters.

There are plans to build a high-speed train between São Paulo and Rio de Janeiro and a hydroelectric power plant at Belo Monte. There is also great potential to develop pre-salt oil fields, says Adrian Schnur Ferreira of Machado Meyer Sendacz Opice Advogados.

Only this year, Brazil’s outgoing president, Luis Inácio Lula da Silva, called for more investment in the pharmaceutical sector, say Ricardo Barretto and Carla Junqueira of Barretto Ferreira Kujawski Brancher e Gonçalves Advogados in São Paulo.

Resource haven: Latin America is rich in oil, gas, coal, water and metal ores.
Resource haven: Latin America is rich in oil, gas, coal, water and metal ores.

The country is also undergoing legal reforms that are likely to affect fiscal and commercial laws as well as the country’s antitrust law, which has been under discussion since 2004.

Tax rates are high – above 100% for some products. The income tax rate is about 25% plus another 9% for contributions to social services. Value added and state taxes range from 9% to 18%, while municipal taxes can add another 5%.

Nevertheless, Indian companies continue to explore possibilities in Brazil. And law firms such as Siqueira Castro, which has 17 offices across the country, are eager to work with Indian clients. Senior partner Carlos Roberto Siqueira Castro says the firm is a regular participant in events hosted by the India-Brazil Chamber of Commerce and has worked with Ranbaxy Laboratories and Mittal Steel.

Law firms of mention in Brazil include Veirano Advogados, Noronha Advogados, TozziniFreire, Pinheiro Neto, Trench Rossi e Watanabe (a Baker & McKenzie partner), and Mattos Filho Veiga Filho Marrey Jr e Quiroga. While the law firm of Franceschini e Miranda has a strong antitrust and competition practice, the law firms of Schmidt Valois Miranda Ferreira e Agel and Vieira Rezende Barbosa e Guerreiros have strong energy practices. International law firms with offices in Brazil include Clyde & Co, Mayer Brown, Baker & McKenzie, Simpson Thacher & Bartlett and Shearman & Sterling.

Chile

Chile may have the best infrastructure in the continent. It has also had a preferential trade agreement with India since 2007.

“Chile’s market is open, stable and well-regarded,” says Fernando Eyzaguirre of Noguera Larrain & Dulanto. “The signing of different free trade agreements has placed Chile as the leader in the region.”

“The trade policy in Chile is free trade with no barriers, and fair competition is supervised by the antitrust authorities,” says Cyril Tostain of law firm Aninat Schwencke & Cía.

Chile is also “quite strict with regard to environmental sector permits and authorizations,” said Rodrigo Muñoz, founding partner of Nuñez Muñoz y Cía. These procedures can be long.

Colombia

With 45 million people and a landmass that is almost as big as Portugal, France and Spain put together, Colombia has no shortage of opportunities. As a result, since 2002, foreign direct investment has climbed 400%. According to the World Bank, Colombia has the most business-friendly environment in the continent.

It has many free trade agreements, and several more are in the pipeline, says Nicolas Tirado of Bogotá law firm Prieto & Carrizosa.

There are also a number of strategic alliances between companies that manufacture products for consumption within Colombia and other countries in the region like Bolivia, Chile, Ecuador and Peru, says Bernardo Rodríguez Ossa, a partner at Rodríguez & Cavelier in Bogotá.

The country is also working hard to overcome its long-held image of being run by drug cartels. “The security problems or violence that investors may [have encountered] in the country are not a question anymore,” says Natalia Tobón, an attorney with Cavelier Abogados.

Kidnappings have dropped considerably, from 3,572 per year at their height to 213 last year. Bogota now has fewer homicides than Washington, Atlanta or Miami, says Jaime Herrera of Posse Herrera & Ruiz in Bogotá.

In addition, legal stability agreements, in which the government commits to freezing certain laws for a period of time in exchange for a small percentage of future investment, have proven popular, says says Juan Pablo Wills, a partner with Lewin y Wills.

“Regulation-wise, tax, business and investment laws have proven very favourable at the moment,” says Wills. One important deduction of 30% applies to income tax for investment on fixed assets.

However, there are downsides. Authorities move slowly and demand complex paperwork.

Well-reputed law firms in Colombia other than those mentioned above include: Brigard & Urrutia, Cardenas & Cardenas and Gómez-Pinzón Zuleta. International law firms Baker & McKenzie and Clifford Chance have a presence here.

Costa Rica

Costa Rica is small and not overflowing with natural resources, but it has an English-speaking workforce and it is situated in a time zone that is ideal for doing business with North America.

The country, which is also one of the oldest democracies in the world, has political and economic stability and a judicial framework that can offer investors some guarantees, says Fernando Vargas, a partner with Pacheco Coto, a well-established law firm in San José.

These days, it is trying to sell itself as an IT hub and has attracted investment from the likes of Intel and HP.

However, it has more to do. It needs to streamline its bureaucracy and also expedite procedures for setting up a business, which currently takes no less than 77 days.

This has not deterred Indian investors. They are increasingly interested in the market, says José Andrés Abarca Martinez, a local partner with the regional firm Arias & Muñoz, which has offices in Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica.

Indian companies are particularly interested in setting up call centres and business process outsourcing facilities here, as well as research facilities for biotechnology and genetics – particularly in relation to tropical flora and fauna.

Most of the law firms in Costa Rica, like Arias & Muñoz mentioned above, focus on the region. Other well-reputed firms include Zürcher Odio & Raven, Gómez & Galindo, and Nassar Abogados.

Dominican Republic

Small and often overlooked, the Dominican Republic has been quietly reforming and modernizing its legal and economic framework. The country’s foreign investment laws put foreign investment and investors on equal footing with local players.

The government has taken steps to attract investment, says José Maldonado Stark, a partner at Russin Vecchi & Heredia Bonetti in Santo Domingo.

While free trade zones offer beneficial tax structures independent of the general commercial environment, a new telecommunications law has opened up the industry to competition.

Unfortunately, a welcoming legal environment is not always sufficient. The Dominican Republic faces constant energy shortages, and electricity quotas and power cuts are common.

Ecuador

Indian interest in Ecuador is slowly rising. Xavier Rosales, a partner at the local law firm Corral & Rosales, says this may lead to an increase in the still-small amount of Indian investment in the country.

“The investment environment in Ecuador … will be stable once the investment conditions [for a project] are negotiated in good faith with the government,” said Carlos Vázquez of Romerto Artera Ponce in Quito.

Ecuador does not have its own currency, but uses the US dollar, which means investors are protected from local currency devaluations, said Jaime Zaldumbide of Pérez Bustamante & Ponce.

In 2008, the country adopted a new constitution and “some laws still have to be amended … but such adaptation should not limit foreign investors’ decision to come to Ecuador,” says Zaldumbide.

Guatemala

Guatemala is constantly looking to leverage its geographical location with free trade agreements to attract investors.

In the past five years, Indian investment has grown, albeit quietly. The country is attracting call centres and pharmaceutical companies, says Claudia Pereira, a partner with Mayora & Mayora in Guatemala City.

In April, India set up an embassy in Guatemala with an ambassador set to take his post last month.

Guatemala is very diverse. There are 23 different indigenous groups, a large population of European descendants, and a wide gap between urban and rural populations. This can create different investment environments and unique cultural barriers.

Perhaps most significantly, says Pereira, Guatemala has no limitations on expatriation of profits and treats domestic and foreign investors equally. The country’s economy is small but it is stable and growing steadily.

Other Guatemalan firms known for foreign-related work include: QIL Abogados, RACSA Consortium and Bonilla Montano Toriello & Barrios.

Honduras

Wedged between Guatemala and Nicaragua and with oceans on both sides, Honduras has been leveraging its access to the US market to sell itself.

The country has a friendly legal environment for foreign investment, a qualified labour force and a variety of natural resources, says Enrique Rodríguez-Burchard, of the regional firm Aguilar Castillo Love in Tegucigalpa.

Still, Indian investors have mostly stayed away from the country.

“The level of interest among Indian companies in the Honduran market is minimal,” says Mauricio Villeda, a partner at Bufete Gutiérrez Falla & Asociados.

This may change as legislative amendments provide new benefits to foreign companies and the government tries to attract more service providers like call centres and software developers.

The problem that remains unsolved, says Villeda, is a lack of communication between his government and that of India.

Mexico

Mexico may be the most stable nation south of the US. What Mexico is angling for is more manufacturing facilities, and it is using its size, its relatively cheaper workforce, its proximity to the US and its place in the North American Free Trade Agreement as its calling card.

Adding to the attractiveness of Mexico is India’s bilateral investment promotion and protection agreement, which has been in effect since 2008.

“There has been some interest by Indian investors in Mexico,” says Daniel Del Rio, a partner at Basham Ringe y Correa. JK Tire, for example, entered Mexico in 2008. ArcelorMittal – although technically not Indian – has a major investment in the country’s steel sector.

Tata Motors, Mahindra, Ranbaxy, Strides Labs, Claris Lifesciences, Wockhardt, Sun Pharma, Dr Reddy’s Laboratories and Solara all have operations here, says José Estandia of Jones Day. In the software sector, Infosys, NIIT, Aptech, Hexaware, Wipro, Patni Computer Systems and others are also already in the market.

Meanwhile, the Mexican construction company Homex has a joint venture with Bangalore-based Puravankara to build affordable homes in India, and Mexican cinema operator Cinépolis has also invested in India.

But for Indian companies looking to Mexico, setting up manufacturing facilities is not all that the country offers – its domestic market is also an attraction.

“Mexicans consume the best product with the most competitive price, regardless of origin,” says Eduardos Siqueiros, a partner at Barrera Siqueiros y Torres Landa. “And let’s not forget that Mexico is the fourth largest economy in the Americas.”

The country has plenty of natural resources and widespread manufacturing capacity. It also has complex business legislation and a business culture where who you know is often a very important consideration.

“Mexico is a country where relations matter a lot,” says Alejandro Sainz, co-managing partner of Cervantes Sainz, one of the largest law firms in the country.

Lawyers warn, however, that contracts also have to be carefully negotiated and crafted.

“Business transactions in Mexico don’t depend so much on the parties’ extra-contractual agreements as they do upon the text of the underlying documents,” said Matt Davidhizar of Galicia Abogados.

Some major disadvantages of setting up in Mexico may be restrictive labour laws and intense union activity. A reform to the federal labour law is currently in front of the country’s congress. At present, employers pay about 25% of salaries for social security and related contributions. Although minimum wages average US$4.50 per day, severance pay is typically three months’ salary plus 20 days for every year worked and any court-imposed compensation.

Well-known firms, other than those mentioned above, include Creel García-Cuéllar Aiza y Enríquez, Mijares Angoitia Cortés y Fuentes and Ritch Mueller.

Nicaragua

Nicaragua has been careful in its global dealings. The country has a legal platform that provides incentives and protections for foreign investment and many sectors also have specific legal frameworks, says Favio Josue Batres of Alvarado y Asociados.

The difficulties associated with working and investing in Nicaragua are similar to those of other countries in the region. One important factor to consider is bureaucratic delay as company registrations, permits and other paperwork might take some time.

Nicaragua has developed “political leanings that arise from a distrust of capital influences from the global north, and a corresponding protectionist agenda,” says Carlos Camacho, an associate with Arias & Muñoz, the regional firm with offices across Central America.

Other well-known local firms include Taboada & Asociados, and Garcia & Bodan.

Panama

Small but well developed, Panama is a mature market and an important transport hub with a strong banking system. The largest duty-free zone in the western hemisphere is in Panama, which exists because of the Panama Canal.

Mature markets: Panama’s well-developed banking and service sectors make it an attractive investment destination.
Mature markets: Panama’s well-developed banking and service sectors make it an attractive investment destination.

Not long ago, Fitch Ratings gave Panama an investment-grade credit rating, raising the country to BBB-minus. Three years ago, the country passed a law that makes it easier for multinational companies to set up offices there.

“Investors are required to meet certain standards of economic solvency, trustworthiness and experience that support their capacity to invest in Panama,” says Luis Hincapie of Morgan & Morgan Abogados.

Panama has a large English-speaking population and a well-developed service sector, particularly in terms of international commerce. The balboa, the local currency, is on par with the US dollar.

A booming real estate sector and plenty of flights in and out of the country add to the attraction, says Peter Chatlani an associate at Galindo Arias & Lopez, a local firm.

Paraguay

Landlocked and often overlooked by investors, Paraguay may offer interesting investment opportunities. In a region plagued by high taxes, it also offers some relief.

There are tax incentives for investments of more than US$5 million. There are “no substantial restrictions for investment and 100% foreign ownership is accepted, as well as a free repatriation of profits regime,” says Luis Breuer, a lawyer with Berkemeyer, a firm that has been in operation since 1951.

In 2008, the Paraguayan Vegetable Oil Exporters Association (CAPRO) negotiated duty-free access for up to 30,000 tonnes of soybean oil with India. Cargill, a multinational, has already exported some to India, says Guillermo Peroni, a partner at Peroni Sosa Tellechea Burt & Narvaja.

Other top local firms include Mersan Abogados, Gross Brown, and Fiorio y Alvarado.

Peru

Peru has been stable for about a decade and a half. It has an investment grade credit rating and its location at the heart of South America makes it both an interesting gateway and a good source of natural resources.

Tata Motors and Bajaj work in Peru, says Jose Daniel Amado of Miranda y Amado, a firm in Lima.

Since 1990, the country has moved towards a more liberal economic model. By 2012, the country wants to be ranked 25th in the Doing Business report, a survey published by the World Bank on the ease of doing business around the world. To achieve this, in July 2009 the government released a business climate improvement plan containing a list of reforms to be implemented by 2011, says Jorge Muñiz, a partner at Muñiz Ramírez Pérez-Taimán & Olaya Abogados.

Still, there are challenges. Like elsewhere in the continent, a slow bureaucracy can derail a business plan.

Immigration laws can be “strict and bureaucratic”, said Juan García Montúfar of Rubio Leguia Normand.

When it comes to mining and hydrocarbon exploitation, “some social conflicts may arise in some communities in the Andean and Amazonian regions,” said José Morales of local firm Garcia Sayan.

Another common problem is a lack of response from authorities when Peruvian parties don’t fulfil contractual or legal obligations, according to Susan Castillo Loo at Payet Rey Cauvi.

“In Peru, it is important that any new investor presents its company, objectives and policies to the authorities,” says Luis Prado of national firm Rodrigo Elias & Medrano.

Other law firms that are often mentioned in Peru are Estudio Olaechea, Estudio Echecopar, Delmar Ugarte Abogados, Estudio Grau, Barreda Moller, Estudio Colmenares, Estudio Valencia, Estudio Francisco Espinosa Bellido and Clarke Modet & Cía.

Uruguay

Although Uruguay is not large enough to be a significant market on its own, it is reasonably stable, safe and increasingly attracting companies looking to set up a local headquarters.

“For Indian entrepreneurs, settling in Uruguay is to have a gateway to Latin America, a territory that has been little explored by that country,” says Ximena Alegre of Sanguinetti Foderé Bragard Abogados.

In September, a high-level delegation from India visited Uruguay and it received much attention from policy-makers. In 2003, Indian imports to Uruguay were worth less than US$10 million. By 2009, the number had topped US$33 million (down from US$75 million in 2008).

Indian investments in Uruguay are often linked to technology services, software outsourcing and energy, says Alegre. In addition, the Tata Group, Reliance Industries and Essar all have a presence and Cipla Pharmaceuticals markets its products in Uruguay.

With Brazil and Argentina as its neighbours, Uruguay stands out for its stability, clear and reasonable rules, and its democracy.

Friendly faces: Peru is taking steps to improve its business climate and overcome its strict and bureaucratic image.
Friendly faces: Peru is taking steps to improve its business climate and overcome its strict and bureaucratic image.

It also has plenty of resources, says Jonas Bergstein of local law firm Estudio Bergstein, which serves “as the nexus or liaison between our clients and the administration”. Probably the major difficulty is “an excess of bureaucracy: too many papers,” says Bergstein.

Nevertheless, Uruguay is experiencing its fastest economic growth in history, underpinned by a reasonably reliable legal system, limited government intervention in business, and good infrastructure.

For foreign investors, there are no significant restrictions. Custom duties follow World Trade Organization criteria and financing is widely available.

Other well-known firms include: Guyer & Regules, Ferrere, Hughes & Hughes, and Posadas Posadas & Vecino.

Venezuela

“The Venezuelan government has repeatedly stated its intention of diversifying the role of investment partners in trying to create what it has called a ‘multipolar world’,” explains Hernando Díaz-Candia, a partner with Squire Sanders & Dempsey in Caracas.

While Venezuela has plenty of oil and is eager to attract investors, it may be a challenge to run a business when the government often poses an obstacle for private investors.

The biggest danger in Venezuela may be expropriation. And, since the country is not a member of International Centre for the Settlement of Investment Disputes, investors could be at the mercy of any change in the political climate.

Squire Sanders & Dempsey is one of the best-known firms operating in Venezuela, along with Baker & McKenzie and Torres Plaz & Araujo.