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Latin America Business: Worst in 2024
The worst news in Latin America business in 2024.
BY LATINVEX EDITORS
The worst events in Latin American business this year, according to Latinvex editors.
#1 TRUMP TARIFFS, USMCA UNCERTAINTY
He’s baaaaack! Eight years after winning his first election as US president, Donald Trump is back, and once again wreaking havoc on trade and US relations with Latin America.
Despite negotiating what he called “the most modern, up-to-date and most balanced trade agreement in the history of our country with the most advanced protections for workers,” Trump now wants to completely ignore that deal by imposing a 25% tariff on its other members, Mexico and Canada.
After wrongly claiming the North American Free Trade Agreement (NAFTA) was “a disaster for the United States,” Trump negotiated a replacement called the US-Mexico-Canada Agreement (USMCA), which largely kept NAFTA’s key parts intact.
Despite clear warnings from both economists and business alike, Trump is vowing to impose the tariffs on the top two US trading partners, claiming that the cost will be carried by those countries and even claiming that the trade deficits with Mexico and Canada represent “US subsidies.”
Instead, industry insiders and experts alike warn that the tariffs will lead to a dramatic paralysis of North American auto manufacturing, higher costs for cars and insurance, higher costs for vegetables, cellular phones, smart TVs and more. Clearly, US imports from Mexico – worth $475.6 billion last year – will suffer.
It will also very likely lead to retaliation by Mexico and Canada, which means US exporters will suffer, leading to job losses. Last year US exports to Mexico reached $323.2 billion.
One major difference between the USMCA and NAFTA is that the new trade pact includes a sunset clause, calling for a review in 2026 (six years after it was implemented), whereas NAFTA was a permanent deal.
There is some speculation that Trump’s 25% tariff plan may be delayed or reduced as a bargaining chip for winning concessions from Mexico and Canada head of the USMCA review.
In any case, what is clear is that starting January 20 (when Trump is inaugurated as president again), nothing is certain about North American trade, which means that US and Mexican companies have to reconfigure their basic business models at a cost of hundreds of billions of dollars.
#2 LULA SCARES INVESTORS
Nearly two years into his latest term as president of Brazil, Luiz Inacio Lula da Silva continues to mess up.
Despite good advice from his own Finance Minister (and likely heir apparent) Fernando Haddad, Lula prefers to ignore basic economics, pushing the real weaker and inflation higher thanks to irresponsible fiscal policies.
While Brazil’s economy has grown more than expected, the continued downward pressure on the currency and upward pressure on prices is hurting business.
Brazil’s budget deficit has ballooned to the equivalent of about 10% of Brazil’s gross domestic product, one of the largest in the world, Bloomberg reports.
The central bank has had no choice but to hike rates, exactly what Lula has been railing against.
“It took us a while to appreciate the magnitude of the fiscal slippage, but now we fully recognize it and are not optimistic,” Patrick Campbell, a portfolio manager at Morgan Stanley Investment Management, told Bloomberg. “It’s just been all about spending. The malaise is completely generalized.”
#3 MEXICO REFORMS
Just when local and foreign investors were looking forward to the end of the six-year reign of Andres Manuel Lopez Obrador, he managed to implement the most damaging reforms he could – weakening the judiciary and killing of independent regulatory agencies.
Even though Lopez Obrador left office on September 30, he was able to pass the reforms in the new legislative session, with the tacit approval of his hand-picked successor, Claudia Sheinbaum.
Under the new judiciary reform, all 7,000 Mexican judges – including members of the Supreme Court – will be popularly elected, opening the way for pressure from the sitting government and the narco-criminals Lopez Obrador let grow during his mandate.
Just as bad as not being independent, is a likely lack of qualifications.
“It’ll be like young, recent medicine graduates performing open heart surgery,” Juan Francisco Torres-Landa, Leader of Hogan Lovells’ Latin America Practice, told the Financial Times. “Uncertainty is going to be the common thread throughout this tragedy.”
The move has been condemned by the US Chamber of Commerce, the International Bar Association and the governments of the US and Canada, which all warn that it will dramatically hurt investor confidence in Mexico.
Adding salt to injury, AMLO also got Mexico’s congress to eliminate the independence of the autonomous regulatory agencies for telecommunications, energy and competition, further weakening any level playing field for private business.
#4 ECOPETROL WEAKENS
In less than 20 months Colombia’s state oil company Ecopetrol has gone from poster boy for success to poster boy for failure.
While Ecopetrol’s former CEO Felipe Bayon garnered widespread praise for his management and delivered impressive results, his successor Ricardo Roa has managed to tarnish Bayon’s legacy.
Roa, the campaign manager for Colombia’s radical President Gustavo Petro during the 2022 campaign, took over the oil company on April 1, 2023 and has been completely unable to win back the investor confidence of the Bayon years.
In July, Roa sent shockwaves in Colombia and abroad when he announced the end of Ecopetrol’s $3.6 billion deal to buy a stake in Texas shale-oil assets from Occidental Petroleum Corp. The deal had been approved by Ecopetrol’s board as late as two months prior.
Officially, the reason was concern over too much debt, but Juan Carlos Echeverry, a former Ecopetrol CEO and ex-Colombian finance minister, said Petro personally killed the deal.
“We thought we were done,” Occidental CEO Vicki Hollub said on a call with analysts quoted by Bloomberg. “But President Petro of Colombia didn’t approve of it. And he’s made it very clear to the world that he’s anti-oil and gas, anti-fracking, and anti-US.”
The following month, in August 2024, two members of Ecopetrol’s board quit in protest. The deal was “fundamental” to the Colombian oil producer’s future and without the resources it would have provided, its finances will deteriorate, Juan José Echavarría and Luis Alberto Zuleta wrote in their resignation letter, Bloomberg reported.
Then last month, a former Ecopetrol executive denounced influence peddling by Roa’s personal partner, Caracol and El Colombiano report. Roa denies any wrongoding by himself or his partner.
There have also been questions raised about Roa’s exclusive apartment in Bogota, which was purchased at below market value from a business partner of Ecopetrol, according to El Colombiano.
As a result, Ecopetrol has seen its market value plunge, both in Colombia and on Wall Street. At Colombia’s stock exchange Ecopetrol’s share price has gone from 2,290 pesos in January 2004 to 1,790 pesos today. Ecopetrol’s American Depository Receipts have fared even worse, going from $12.22 at the start of the year to $8.23 today.
Ecopetrol’s downfall is symbolic of Colombia under Petro, known more for spending time on X, formerly Twitter, insulting his “enemies” than trying to find solutions for improving the country. He has gone full steam ahead on initiatives aimed at weakening private and foreign investments.
Colombia’s economy barely inched up 0.6% last year and this year will likely see growth of 1.8%, the International Monetary Fund predicts.
Meanwhile, Petro’s failed policies aimed at “Total Peace” have resulted in the country’s three top criminal groups strengthening while the police and armed forces have been significantly weakened.
#5 END OF CAR WASH
A decade after Brazil’s anti-corruption probes led to arrests of top business people and politicians, spurring hope for the fight for transparency in Latin America, the whole process is ending on a sad note.
Luiz Inacio Lula da Silva, arrested in 2017, is now in Brazil’s presidential palace, while his handpicked judge on the Supreme Court is busy throwing out case after case linked to the so called Lava Jato (Car Wash) probes.
“Before Lava Jato, it was completely unthinkable that certain players would ever face prison,” Filipe Campante, associate professor at Johns Hopkins University, told the Financial Times after the Supreme Court overturned two prominent ‘Car Wash’ corruption convictions in May. “What these decisions seem to establish is that things have not changed.”
Germany-based anti-corruption watchdog Transparency International went even further. “The destruction of the fight against corruption in the country is relentless,” it said on X, formerly Twitter.
The decisions are now cascading across Latin America, leading to the dismissals of at least 115 convictions in Brazil and casting doubt over many other cases in Panama, Ecuador, Peru and Argentina, including the convictions of several former presidents, The New York Times reports.
Its undoing is now a dreary conclusion to an investigation that had once been viewed as a sea change in Latin America, promising to root out systemic corruption that had rotted the underpinnings of governments, the newspaper wrote in a recent report.
“People who should be paying for their mistakes or their crimes, to some extent, will get away with it,” Maíra Fernandes, a criminal lawyer and professor at the Getúlio Vargas Institute, a Brazilian university, told The New York Times.
For foreign investors that is bad news.
“Businesspeople working in Latin America consistently perceive significant corruption risk in their operations,” pointed out Matteson Ellis, Miller & Chevalier’s Latin America Practice Lead, on the results of the firm’s 2024 Latin America Corruption Survey in April 2024.
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