2010 February | IndusLatin

Venezuela strays from its policy of nationalization

February 12th, 2010 Posted in Energy, Investing, Latin America, Politics, United States

Venezuela has been particularly hard hit by the global recession over the last few years. Last year alone, the country experienced 27% inflation and a 2.9 percent decline in economic output. Times are tough enough, in fact, that famed “anti-capitalist and Marxist” Hugo Chávez has declared that, “Investment and experience from foreign oil firms is necessary in Venezuela. We need it.”

Venezuela has long been criticized by the US and others for its policy of nationalization, which it has pursued with vigor in industries like telecommunications and oil. Chávez actually nationalized the entire oil industry in 2007, but recently, that trend has begun to change; Chevron inked a deal worth multi-billions of dollars to drill in Venezuela after it submitted the winning bid for some oil blocks in the first oil auction since Chávez took office 11 years ago. A second group of companies, previously highlighted on this blog, won a different set of oil blocks.

According to the NY Times, this deal signals a significant shift in strategy for Venezuela and Chávez.

After clashing with foreign oil companies in recent years, President Hugo Chávez of Venezuela has shifted strategy and awarded contracts to Western oil companies, hoping to increase his nation’s flagging oil production and pull the country out of a sharp economic downturn.

Chevron, the American oil giant, led a group of companies that won one of the concessions on Wednesday night…

Furthermore, this shift in oil policy may indicate that Venezuela will be seeking warmer relations in general with the United States and other countries that Chávez has been prone to demonizing.

In an unusual display of warmth given his friction with Washington, Mr. Chávez happily greeted a senior Chevron executive in attendance, Ali Moshiri, the company’s president of African and Latin American operations. Mr. Chávez conceded that differences remained with the Obama administration, but he also extended an invitation for President Obama to visit Venezuela’s southern oil region, telling Mr. Moshiri, “You bring him here.”

This latest development in Venezuela may be part of a general shift in Latin America from the left to the center. Other indications of this current centralist trend include the election of a right-wing billionaire in Chile’s presidential election, the strong success of Brazilian President Lula who governed from the center-left, and an overall decline in combative left-right discourse throughout South and Central America.

chavez, chevron, oil, venezuela

Indian Companies See Growth Opportunities In Latin America

February 11th, 2010 Posted in Agriculture, India, IT, Latin America, M&A

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Latin America gets almost zero coverage in the Indian media, who is affliced with extreme ‘SouthAsianitis’ in their news coverage. Many Indian executives have never seen a visual of the region. The occasional coverage is the annual carnaval in Rio, the World Cup every 4 years featuring plenty of LatAm teams, and the anti-yankee rants emanating from Venezuela and Cuba. From my experience, a number of Indian executives believe that Latin America is a disease-ravaged, war-torn place with a refugee problem! I have to disabuse them of this notion. Indian IT and pharma companies are also showing that this is far from the truth, and are the pioneers in opening these markets for further investment by Indian companies in other sectors.

Even from my experience in US media, Latin America is viewed through the composite lens of illegal Mexican immigration, the anti-Castro Florida lobby and narcotrafficking. As if nothing else exists. Latin American countries, with the exception of Chile, have not aggressively pushed positive P.R. to attract foreign investment. For a changes, here is a Canadian perspective on LatAm.
WSJ.com

More and more Indian companies are looking to do business in Latin America as they seek exposure to growing markets. The ties are also manifesting themselves on a policy level with trade agreements between India and South American countries picking up.

Like those of its Asian neighbor, Indian companies are seeing Latin America as a more secure investment destination, thanks to broadly stable government and economic policies. These markets are also increasingly becoming a potential lifeline as India deals with food shortages and droughts.

“In India, consumption is growing while the land is diminishing but here in Latin America we don’t have any such land-shortage problems,” said Rengaraj Viswanathan, India’s ambassador to Argentina, Uruguay and Paraguay, who has been pushing for Indian companies to set up shop in the region.

Indian companies have invested around $9 billion in Latin America during the last several years, according to Viswanathan, and “that number is just going to keep on growing.” The next step in this trend is the agribusiness side, market watchers say.
Shree Renuka Sugars Ltd. (532670.BY) late last year became the first [Indian] agribusiness to enter South America with its takeover of Brazilian Vale Do Ivai SA Acucar E Alcool. The company is eyeing more acquisitions in Brazil, the world’s top sugar producer.

India’s recent transformation from an exporter into an importer of sugar, thanks to rapidly rising domestic consumption, has caused many companies to look outside the country in order to maintain supplies. Ethanol, too, is growing in importance as some Indian states have set mandatory guidelines on ethanol in the fuel supply.It’s a similar case for edible oils, where demand is outstripping domestic production.

As markets stabilized in the last few months of 2009, a series of Indian companies affirmed their plans to increase their exposure to Latin America. Tata Consultancy Services Ltd. which already has sizable operations throughout the region, said in September that it was eyeing several acquisition targets. And just recently at the World Economic Forum in Davos, Switzerland, Tech Mahindra Ltd. Chief Executive Sanjay Kalra said his firm is “very interested” in mergers and acquisitions in Latin America. Information-technology companies see plenty of opportunity in the region using service centers to tap local customers and also to serve clients in a slowly rebounding U.S. economy.

Agriculture Opportunities for India in Latin America – Speech at CII Partnership Summit

February 9th, 2010 Posted in Agriculture, India, Latin America

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I was invited to speak at the CII Partnership Summit held in Chennai at the session on New Trade Routes. I spoke on how Latin/South America is well-positioned as the world’s agriculture outsourcing hub, and can meet India’s needs for food security. See video below:

<a href="http://www.vimeo.com/9102206">http://www.vimeo.com/9102206</a>

The recent price rise in food items which has caused heartache and wallet-ache for many Indian households is a phenemenon that will worsen in the years ahead. The near quadrupling in the price of toor dal (split pigeon pea) over the last 3 years is only a trailer in the coming horror movie of spiraling food inflation. With Indian incomes forecast to rise over the next decades, food consumption will skyrocket. On the edible oil front, the annual additional deficit of 350,000 to 450,000 tons projected by the Solvent Extractors Association of India is the equivalent of every Indian eating an additional samosa or bhajji every year; this is an exponential increase in demand. The same is the case with pulses and other commodities.

Forgetting the recent blame game for rapid food price in India – accusing politicians, traders, speculators, hoarders for this recent food increase, the main reason has been prolonged underinvestment on the supply side of food production, because Indian farming has been a sector with terrible incentives. Not surprisingly, 45% of Indian farmers want to quit farming. Add to that rapidly falling water tables in North India – India’s bread basket, and erratic monsoons from climate change you have the recipe for domestic food output falling short of demand, repeatedly in the future.

Latin America can meet India’s food needs, a place where agriculture commands the status of IT in India, with the best brains and fortunes in that sector. Indian companies should join US, European companies who have realized this, and participate in the agri value chain there – investing in contract farming to agroinputs to food processing to logistics.

Agriculture, agriculture outsourcing, edible oil, food inflation, India, Latin America

Brazil’s Ascendency as an Oil Power

February 8th, 2010 Posted in Brazil, Energy, India

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Over the next decade Brazil may become one of the largest oil producing nations in the world. In late 2007 a new and sizable oil field, dubbed the “Tupi” field, was discovered in the Santos Basin in deep water off the Brazilian coast, and it holds the promise of energy self-sufficiency for Brazil. As Dilma Rousseff, a current presidential candidate and Chief of Staff to Brazil’s President Lula, put it, “This has changed [Brazil’s] reality.”

This news can only bolster Brazil’s rising reputation as an energy giant. The country is already a powerhouse of alternative fuels, owing to its status as the world’s second largest producer of ethanol fuel.

Brazilian officials with the state-owned oil company Petrobras have said that they expect to be able to develop the field with little outside help, and Brazil certainly has an interest in keeping profits from the field at home; early estimates are that the field will increase Brazil’s proven reserves to 17.2 billion barrels of oil. While that figure pales in comparison to the reserves of some traditional oil producers like Saudi Arabia (267 billion barrels) and Canada (179 billion barrels), it would put Brazil in front of countries like Mexico, Qatar, and Algeria, and place Brazilians firmly on the list of the largest oil producing nations. Furthermore, there is still potential for the oil field’s reserves to be even larger. Haroldo Lima, the head of the National Petroleum Agency in Brazil, estimated the size at 33 billion barrels, which would put Brazil’s reserves at a whopping 42 billion barrels and push it ahead of countries like Nigeria, Libya, and the United States.

Still, getting to the oil won’t be easy. Since it is a deepwater field, specialized equipment will be necessary. One estimate puts the cost of accessing the oil at $200 billion, which is no small investment, but it’s one that Brazilian officials are taking very seriously. Part of the high cost will be acquiring or building the deepwater rigs that can reach the oil. The rigs are rare and expensive to manufacture, and Petrobras officials have discussed the possibility of building the rigs themselves if necessary, but it is more likely that they would turn to their traditional suppliers in the United States. Similarly, Brazil will need to develop infrastructure to refine the oil. Since the country already does over $2 billion a year in trade of refined oil with India, it is possible that Petrobras might turn to India for expertise in building a refinery in Brazil.

Curiously, there has even been some talk that Brazil might build a nuclear-powered submarine to guard the oil field when extraction begins. This possibility was suggested by Brazilian Defense Minister Nelson Jobim, who said that Brazil needs “to choose the padlock that befits the riches in the safe.”

It will be interesting to see how this all plays out, but for now it suffices to say that Brazil is already in a great position to assert itself as an energy producing power, and its status is continuing to rise.