#1 PANAMA SHOCKS

Panama – long considered a shining star in Latin America in terms of business climate and economic growth – has just made history by rejecting its largest foreign investor ever in a move widely condemned by investors.

After months of negotiations over a new tax demand by President Laurentino Cortizo, Canada-based First Quantum was rebuffed and even worse – the government will take over its Cobre Panamá copper mine in a move that would violate its concession, which is valid through 2037.

“We are disappointed by the Government’s actions,” First Quantum said in a statement.

First Quantum has invested $10 billion in the mine – nearly twice what Panama spent on expanding its canal. The mine concession was originally granted in 1997 by the government of President Ernesto Perez Balladares, then renewed in 2017 for another 20-year period by the government of President Juan Carlos Varela.

However, with Cortizo -- who assumed office in 2019 -- its fate changed. He  immediately started shaking up the business climate in Panama, seeking renegotiations of the US-Panama free trade agreement from 2007. Cortizo had been agriculture minister when the agreement was being negotiated and resigned in protest in 2006 over objections to the new pact.

In the end he failed to get the US FTA renegotiated, but Cortizo also set his eyes on the largest foreign investment in the country – the Cobre Panamá copper mine 120km west of Panama City.

With 3.0 billion tons of proven and probable reserves, Cobre Panama is one of the largest new copper mines opened globally in the past decade. Located in Colon Province, the production complex includes two open pits, a processing plant, two 150 megawatt power stations and a port.

Commercial production started in 2019 and at full current capacity, the plant will process 85Mtpa of ore to produce more than 300,000 tons of copper per year along with gold, silver and molybdenum.

Before becoming president, Cortizo had pledged to seek a new contract with the Canadian mining company and talks kicked off in September last year. From the get-go, Panama’s government played hardball, with trade minister Ramon Martinez threatening that if a fairer deal was not reached another company could be invited to take over the mine. In January there were reports of a deal, but talks continued.

Since no new contract has been signed, the current one is legally valid, which means that any Panamanian government actions against the mine would be in violation of its existing contract and First Quantum could sue Panama and win.

Panama will now face severe economic and reputational consequences, as Panama Chamber of Commerce president Marcela Galindo De Obarrio had warned earlier. 

#2 IPO PLUNGE

After a record year in 2021, initial public offers in Latin America practically disappeared this year.

Much of the reason was the lack of IPOs out of Brazil, which has dominated Latin American initial public offers.

The IPO boom fizzled in Brazil due to a combination of factors, including higher interest rates by the central bank (driven by inflation-boosting policies by outgoing President Jair Bolsonaro), constant unwarranted noise about economic policy from Bolsonaro, uncertainty around the election and global volatility.

#3 PERU CHAOS

Airports paralyzed. Key exports unable to get out. Tourists stranded. Shops looted. A government seemingly with no power. This is how Peru – once one of Latin America’s bright stars – is ending the year.

The latest round of bad news came after Pedro Castillo – the highly incompetent teacher union leader who had been president since July last year – announced he was dissolving Congress in what was effectively an auto-coup. Within a few hours, Castillo was arrested and his vice president Dina Boluarte assumed the presidency. While Castillo’s term ends 2026, Boluarte is now mulling holding early elections, which means the political uncertainty will continue after the 17-month chaotic reign of Castillo.

Political uncertainty is not new in Peru, but has been the norm since 2018 when then-president Pedro Pablo Kuczynski resigned after only two years after allegations of vote buying to avoid losing impeachment votes. But what followed was three presidents until Kuczynski’s original mandate ended in 2021.

As a result, Peru has had six presidents from 2006 to today, instead of the two it should have had if each finished a five-year term normally.

For several years the instability didn’t seem to impact the economy, but that ended this year.

"Politics and the economy can no longer be treated separately in Peru," Fitch said in a report in August.

#4 COLOMBIA UNCERTAINTY

As Gustavo Petro celebrates his first four months as president of Colombia, investors have little to cheer about. Uncertainty about the key oil sector continues. Oil is Colombia's main export representing nearly 55 percent of the country's total exports and roughly 40 percent of the foreign direct investment that flows into Colombia goes to the oil and gas industry.

Before becoming president, Petro vowed to stop new oil exploration and restrict oil exports. His energy minister Irene Velez repeated that pledge after assuming office and at the UN General Assembly in September, Petro rhetorically asked what was “more poisonous for humanity - cocaine, coal or oil?”

But last month, Colombian finance minister Jose Antonio Ocampo said that, despite what his colleagues may have said, the government is still analyzing whether new oil exploration contracts are needed, as  Bloomberg reported. Then, ten days ago Colombian radio station La FM reported that amendments to a fracking bill submitted to Colombia's Congress by Velez proposes prohibiting any new licenses for oil and gas exploration and prohibiting existing licenses for fracking.

The uncertainty around oil comes as Petro’s tax reform has been widely criticized by business and will impact foreign investors as well (see The Impact of Colombia’s Tax Reform).

#5 MEXICO OVER BUDGET

Mexican President Andres Manuel Lopez Obrador railed against government waste before assuming power, but now is responsible for $17.7 billion in cost overruns from three of his pet projects.  

The Maya Train – a 1,525-kilometre intercity railway in Mexico that will traverse the Yucatán Peninsula – is now expected to cost a whopping $20 billion,  or 68% higher than the $11.9 billion budget the government had previously announced, Bloomberg reported.

Meanwhile, another of the president’s pet projects, the Dos Bocas oil refinery, is now expected to cost a $15.6 billion or twice the $8 billion it originally was supposed to cost, El Economista reported.

Lopez Obrador, or AMLO as he is popularly known, also built a new international airport aimed at replacing a planned one that he scrapped after it was a third finished.

The new airport known as AIFA (located at the Santa Lucia air force base) opened this year at a cost of 104.5 billion pesos (US$5.2 billion) or 39% more than the original estimated cost of 75 billion pesos. At today’s exchange rate that would translate to $2 billion in cost overruns.

Unfortunately, the price of AIFA doesn’t stop there as AMLO also had to pay for the cancelled airport known as NAIM. In a shock decision, AMLO cancelled the $16 billion NAIM, which was set to be a world-class airport aimed at meeting future demand and replace the highly-congested AIMC airport.

The government auditor ASF says the cancellation cost 113.3 billion pesos (US$5.7 billion at today’s rate), Expansion reports. However, if the investments made at NAIM before it was cancelled are included the total comes to 193.6 billion pesos (US$9.8 billion), according to El Financiero.

That means the Mexican government has spent $15 billion to cancel what would have been a world-class airport (NAIM) to build a small airport (AIFA), while the congestion problems at AIMC continue.  

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