Canada: More Latin America Focus

Led by Scotiabank and mining companies, Canadian companies are showing increased interest in Latin America.

BY LATIN AMERICA ADVISOR
Inter-American Dialogue

Canada's federal export lender, Export Development Canada, on Feb. 5 opened an office in Bogotá, its seventh office in Latin America including locations in Mexico, Chile, Peru and Brazil, to help Canadian companies take advantage of opportunities in the South American country. What is driving Canadian businesses to look at expanding in Latin America, and what factors are standing in their way? In what sectors are there the greatest opportunities and obstacles for bilateral trade?

Ken Frankel, chair of the Canadian Council for the Americas (CCA) and adjunct professor of law at American University Washington College of Law: Though Canadian trade with and investment in Latin America and the Caribbean goes back centuries, it has been only fairly recently that Canadian companies have capitalized on the complementarities of Canadian strengths and advantages and Latin American opportunities. This has been aided in part by the first sustained effort ever by a Canadian government to promote Canada's political and economic interests in the region--a region where the Canadian government generally feels comfortable with the political leadership. As Canadian investment enters a new generation, there is more collective Canadian business knowledge, experience and comfort in Latin America. Immigration to Canada has also increased exposure to and comfort with the region. To a large extent, the charge has been led by the extractive industries, particularly mining. And where resource industries go, so go the ancillary industries that serve those interests--ancillary industries that then find ways to extend into other local opportunities--infrastructure development, technical assistance services, finance, etc. But that is not the whole story. The Canadian financial industry in the region, led by Scotiabank's entry at a time when many other international banks were more skeptical, continues to grow well beyond wealth management activities. Large pension plans have become heavy investors in a wide range of companies. Other Canadian companies, responding to country-specific priorities, are drafting off of the Canadian brand in health, housing and education. Playing on the complementarities and value chains in the NAFTA market, Canadian investment and trade in manufacturing and technology, for example, auto and aerospace, are significant. A cursory review of the pattern of massive Canadian investment along the Pacific coast will reveal why Canada is keenly interested in the Pacific Alliance. As is the case with other foreign investors, Canadian investors prize predictability and stability. This has become a challenge for the Canadian mining sector which has experienced modifications of investment and royalty rules and contracts well after massive amounts of money have already been sunk into the ground.

Carlo Dade, director of the Centre for Trade & Investment Policy at The Canada West Foundation: Canada has had long-standing ties to and commercial interests in Latin America. The Bank of Nova Scotia, or Scotiabank, had an office in Kingston, Jamaica long before opening its first office in Kingston, Ontario. The recent round of activity stems from two factors. First, there has been a general awareness in Canada, occasioned by the slowdown in the United States, that the country needs to look harder at pursuing opportunities in fast-growing emerging markets. This realization has come to Canada later than to other advanced economies. But much of the public attention on this push into new markets has focused on Asia. Canada has a stronger think tank, research, media and academic infrastructure for Asia than it does for Latin America, and as a result, public attention has tended to focus on Asia and inroads made by Canadian companies into Latin America have not garnered as much attention. In addition, Canada lacks a peak Latin American business organization with the ability to garner national or regional attention, and this has also let Canadian involvement in the region fly under the radar. A second factor has been the recent round of trade agreements signed by the government with Colombia, Panama and most recently Honduras, along with the attention given to the Pacific Alliance in the run up the prime minister's attendance at the summit last year in Cartagena. This has managed to shift some of the focus in Canada toward Latin America and done so in a favorable light. With no trade agreements in Asia and no prospect of any agreement being concluded soon and with seven in Latin America, it is not surprising to see renewed interest in the hemisphere.

Beatrice Rangel, member of the Advisor board and director of AMLA Consulting in Miami Beach: Canadian companies usually seek larger markets abroad given the size limitations of their local market. Other drivers include competitive advantages in mining and clean energy production as well as geopolitical shrewdness. Canada has played its political cards very well in Latin America by means of supporting democracy and human rights for many decades. Concerning Mexico, Canada has been slow to take full advantage of NAFTA-related benefits but is finally mastering this growth avenue. Chile's mining sector represents about 25 percent of its GDP, thus there is a clear avenue for growth available to Canadian companies. Similar reasoning applies to Peru. Also, Canada has created a wider trading space through free-trade agreements with many Latin American nations. However, I believe Canadian companies have been far more active recently in light of a perceived emerging threat: China's thirst for commodities. Thus it is essential for Canadian companies to be well positioned in Latin American nations before trading partnerships materialize with Asian countries.

Halina B. Ostrovski, president of HBO International Consulting in Toronto: The huge volume and diversity of business opportunities throughout Latin America, the variety and accessibility of financial instruments and government support should be sufficient for Canadian businesses to do more in the region but despite continuous growth, trade numbers are still very modest to date. Twenty years ago, fiscal and monetary policies, political instability and security issues presented serious challenges, particularly for newcomers to the market, and it is almost certain that these challenges will never disappear completely. However, it is easier to do business in many countries in the region. There are more efficient and simpler transport options, more accessible financial instruments and more trade agreements in place. It seems that Canadian companies continue to be greatly focused on the U.S. market to the detriment of bolder choices. Perhaps success will be more visible for Latin American companies doing additional business in Canada instead.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor