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From issue: Impact Investing: Profit Meets Purpose (Fall 2011)

Policy Updates

A snapshot of policy trends and successes in the region.

In this issue:

Diplomacy: Canada's New Policies Toward Latin America

Colin Robertson

In August, on his fourth official visit to Latin America, Prime Minister Stephen Harper set out to reboot Canada’s on-and-off-again relationship with the region. In the first stop on a four-country tour that took him to Brazil, Colombia, Costa Rica, and Honduras, Harper declared in São Paulo that “during too long a time we neglected relations[…]too much grass grows in the cracks on the road. It is time,” he added, “for increased ambition.”

Ambition is important. But so is perseverance.

Canadian efforts in the Americas are characterized by quixotic spasms of tango-like embrace: joining the Organization of American States (1990); negotiating the North American Free Trade Agreement (NAFTA, 1993–1994); and committing to the Free Trade Area of the Americas (1994)—all nearly 20 years ago. But this rush of engagement was followed by a long siesta until 2007, when the Harper government announced its Strategy of Engagement in the Americas, which emphasized democratic governance, prosperity and security. The plan is only now taking shape.

It does take two to tango, and Latin American governments share equal responsibility for failing to take advantage of Canadian interest and opportunities.

So what makes Harper’s newest effort different?

First, there is the economic malaise in the United States and the recognition that Canadians really do need options to the U.S. market. Agree or not with Standard & Poor’s’ reevaluation of American creditworthiness, there is no disagreement with its analysis that “the effectiveness, stability and predictability of American policymaking and political institutions have weakened.”

For Canadians, the U.S. market and the bilateral relationship will always remain primordial, but as the U.S. hunkers down and the administration focuses on a “jobs” agenda, there is a likelihood of renewed protectionism—which could affect the huge Canada–U.S. resource trade in everything from lumber to fish. Notwithstanding President Barack Obama’s promise to export his way out of the economic malaise, certain Democrats and Tea Party Republicans equate free trade with the outsourcing of jobs. And that may impede further efforts to broaden the opportunities for Canada under NAFTA.

While Canadian and U.S. negotiators are in discussions to ease border access for people and goods, these steps alone will not strengthen the Canadian market. Canada must look to new opportunities to hedge its bets.

That is being done slowly in Latin America. On August 15, a free-trade agreement (FTA) with Colombia—an economy equal to the state of Connecticut—went into effect, and new implementing legislation for the Canada–Panama Free Trade Agreement (similar in economic weight to Vermont) is being introduced in Parliament this fall. Canada also has FTAs with Costa Rica, Peru and Chile.

Beyond FTAs, Latin American countries are making it easier for Canada to invest and do business in the region. A decade-long dose of the Washington Consensus, whatever its faults, has rinsed away the previous attachment to the Prebisch-inspired statism that stigmatized earlier efforts at boosting investment and terms of trade.

Mexico is a prime example. The World Bank and International Finance Corporation’s Doing Business 2011 report declared this NAFTA partner as the easiest place in Latin America to run a company. The International Monetary Fund says Mexico’s economic growth will eclipse that of the U.S. and Canada from now until 2015, and Goldman Sachs predicts that in 40 years Mexico will be the world’s fifth-largest economy—bigger than Russia, Japan or Germany.

Third, Canadian business is prepared for risk, recognizing that the options are either grow or get absorbed. Twenty years of freer trade have given Canadian companies, especially the larger ones, the confidence that they can compete internationally and the experience of operations on the global stage.

CTV network anchor Andrea Mandel-Campbell notes in Why Mexicans Don’t Drink Molson that Canadian companies are historically timid about venturing into international markets, but Mexicans ride on Bombardier-constructed subways and Scotiabank is the sixth-largest retail bank in Mexico. Where once Canada’s business associations focused almost exclusively on the U.S., their membership is now encouraging them to look beyond its neighbor to the south.

Fourth, the renewed Canadian approach melds trade objectives with development aspirations. Attitudes toward aid are changing with the increasing recognition that a job is the best form of development assistance. A key feature of the rebooted relationship with Brazil is a CEO Forum, staffed by the Canadian Council of Chief Executives and the Brazilian National Confederation of Industry.

This business-to-business dimension promises real gains, especially if Brazilians and Canadians can agree on a set of practical objectives such as increasing direct flights and identifying business impediments that can be addressed by working with governments. CEO forums should be included in every FTA negotiation and built into the existing relationships with Mexico and Chile.

To sustain the opening with Brazil and to move the relationships with key partners like Mexico and Chile to the next level will require a series of focused blueprints. These will have to address critical questions such as how to attract more Latin American investment in Canada and what barriers—especially those specific to Latin America—can be addressed by Canadian initiatives. The Canadian business community is engaged and should be a driving force for taking the relationship to the next level.

In every case, there needs to be a systematic plan of engagement starting at the most senior political level.

For one, the prime minister needs to block at least one week a year for visits to the region. To provide the needed intellectual capital, Canadians also need to actively support the work of think tanks and improve existing synergies among organizations.

The demise for lack of funding in September of the Canadian Foundation for the Americas (FOCAL) research center, after 21 years of advancing Canadian interests, is a setback because it consistently provided useful intellectual heft and intelligent trend-spotting.

FOCAL had been largely dependent on Canadian government funding after it was created by an act of cabinet under Prime Minister Brian Mulroney (1984–1993). In its next iteration it should look more like the Inter-American Dialogue or Americas Society/Council of the Americas, with strong private-sector involvement and a focus on investment and trade as the best means of generating development and creating long-term relationships.

The current Canadian government is not the first to promise a new look at the region, but all too often action never followed rhetoric. If the Americas are truly a priority, and Harper’s promise to be “ambitious” is more than just repetition of the old rhetoric, the prime minister’s continued attention to the region will be necessary.

Unless the Canada–Latin America relationship is given a place of priority on the agenda and moves from aspiration to pragmatic results, the grass will grow back in the cracks.

Mining: The Risks for Afro-Colombians and the Indigenous

Andrea Armeni

If economic forecasters are correct, boom years are ahead for Colombia. Private and official analysts predict the nation’s gross domestic product (GDP) will grow by an average of 5 percent per year over the next decade. Much of the forecast, though, is based on the assumption that the country will experience an upsurge in mining and oil investment and revenue.

But the rapid expansion of mining concessions also directly threatens the territorial rights—and economic health—of the country’s Indigenous and Afro-Colombian populations, who make up 30.5 percent of Colombia’s population, according to the Office of the United Nations High Commissioner for Refugees.

Future investment and expansion of mining will directly affect Colombia’s more vulnerable populations, since many of the sought-after concessions affect Indigenous lands—or resguardos—and other protected territories. Resguardos make up approximately 74 million acres (30 million hectares) of Colombian territory, while 17 million acres (7 million hectares) are Afro-Colombian lands. Under Colombia’s constitution, this territory belongs to the respective communities, although the state retains sub-soil rights for mining and oil exploitation.

There is no question that mining is a fundamental driver of Colombia’s economy. The mining and oil sectors contributed 6 percent of GDP and provided almost 50 percent of the country’s total exports ($8 billion) in 2010. Mining should account for nearly 13 percent of GDP by the end of the decade, according to the Ministry of Mines and Energy. During the administration of former President Alvaro Uribe, the number of acres with mining concessions increased eightfold, from 2.79 million to 21.08 million (1.13 million to 8.53 million hectares)—or about 4 percent of the national territory. Today, there is a backlog of 20,000 unprocessed title requests, covering approximately 20 percent of Colombia.

Since taking office, President Juan Manuel Santos has continued to focus on expanding mining, touting it as one of the “locomotives” of the country’s economic development. At the same time, after passing the Colombian Congress last year, the newest Mining Code reform (known as Law 1382) was struck down by the Constitutional Court in May 2011. The reform threatened to apply even more pressure to Indigenous and Afro-Colombian lands—and by implication their inhabitants—in areas such as the Amazon rainforest. It was deemed unconstitutional due to the lack of prior consultation with Indigenous and Afro-Colombian peoples who live on the land—a constitutionally guaranteed right.

While Law 1382 did recognize the need to strike a balance between development and the protection of Indigenous rights, it opened up some worrying loopholes. The reform contained new environmental restrictions, such as a ban on mining in the fragile highland ecosystems; but it also favored applications from companies with economic and technical advantages. For example, it allowed Special Reserve Zones (protected environmental or ethnic territories) to be developed for major strategic mineral projects when Colombia’s Mines and Energy Planning Unit and the Ministry’s Mining Institute (Ingeominas) identified such projects as critical for potential mining investment. These would have most likely been large-scale projects aimed at polymetallic deposits that contain gold, copper, nickel, molybdenum, and coal.

Overall, the focus on large-scale mining favors multinationals over local mining companies. But large mining developments displace the subsistence artisanal mining practiced by large numbers of Indigenous and Afro-Colombian populations by excluding them from the larger concession zones.

With the reform struck down, the Colombian government then published a proposed, amended mining code in August that does not differ substantially from the previous edition. This time around, the government will consult with Indigenous and Afro-Colombian peoples before presenting the reform to Congress, as required by the Constitutional Court. While it will pass constitutional muster, it is not clear that these revisions will address the risk to Amazon communities posed by the mining boom.

Another challenge for these Amazon communities is that, despite the legal protection of ancestral lands, many areas of the Colombian Amazon have yet to be titled. In many of these places, conflicts over land not only involve communities, but also often result in violent speculation and conflict among paramilitaries, private investors, guerrillas, narcotics traffickers, and the military. Areas with weak state presence attract speculators and illegal armed groups in a Wild West environment, with traffickers increasingly interested in gold as a way of laundering drug trafficking money. Consequently, members of the communities are often threatened with expulsion and violence if they resist encroachment on their lands.

As the mining push proceeds, Colombia’s environmental framework remains in limbo. Santos still has not named an environment minister and the country continues to view environmental and social safeguards as an impediment to mining.

As a result, the expansion of mining investment is putting at risk a long-standing conservation model that combines protected areas and Indigenous territories. The risk is compounded by bureaucratic inefficiency in the Ministry of Mines and Energy where, by its own admission, without a working centralized database, hardly anyone knows what titles have been issued. “State institutions in charge of mining issues are totally overburdened by the growth of mining requests,” according to Carlos Rodado, the mining minister. In response, in July, the ministry extended a moratorium on mining-concession requests until at least February 2012.

The push to expand mining activity is critical for economic growth; but ignoring the social and environmental costs will take a huge toll. The new version of the mining code must take this into account. The government also should carefully consider and reconcile the legitimate worries of the mining sector and civil society in its reform plans. Everyone can benefit from the mining boom. But this must be done without adversely affecting the environment and Afro-Colombian and Indigenous communities.

Telecommunications: The Region's Growing Customer Service Industry

Layne Holley

Latin America has a new competitive edge: call centers. The growing Spanish-speaking population north of the Rio Grande, combined with increased English proficiency, has made the region a highly desirable near-shore customer care destination for U.S. and Canadian companies.

Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico are the industry’s top investment destinations. In each, business expansion is driven by a young, bilingual, educated, and articulate labor force; increasingly solid technological infrastructure; lower operating facility and labor costs; and time zones that allow access to a large market.

Latin American call centers—or contact centers, as some are termed—have represented a bright spot in the outsourcing business, which hit difficult times in 2008–2009 because of the global economic slowdown. Through 2012, the regional market is expected to grow, though at a slower pace than before the crisis.

The April 2011 merger of two leading business process outsourcing firms—the Argentine–Colombian firm Allus and Canada’s Contax—shows the dynamism of the market. Contax was drawn into the merger because of the region’s favorable regulatory framework, which includes governmental efforts to control inflation and ease red tape and tariffs. The combined operation employs 120,000 people (85,000 from Contax) with operations in Argentina, Colombia, Peru, Spain, the U.S., and Brazil.

The merger shows how growth is not limited to foreign companies seeking to outsource their customer care operations. Local businesses are also benefiting. “There’s an increasing appetite to go after Latin America from Latin America and not just offshore,” explains Jose Romero, CEO of the new Allus/Contax conglomerate. This locally driven growth stems from the success of regional companies such as Mexico-based Softtek, which provides outsourcing services.

However, future growth will require tapping into a maturing workforce pool while keeping costs in check. On the labor front, the International Customer Management Institute has found part- and full-time call center work to be an attractive opportunity for students, the elderly and the disabled, who can earn between $7,500 and $12,000 per year. These jobs offer an outlet for workers to use their bi- and multilingual skills, and to enter a business on the ground floor. At American Express, for example, the vice president of customer service for United Kingdom operations, Jose Vazquez-Mendez, began his career at the Mexico City call center.

But how do individual countries at the forefront of the region’s call center industry stack up?

Mexico is the regional leader, according to the A.T. Kearney Global Services Location Index (GSLI), which ranks outsourcing and call center competitiveness. In the 2011 survey of 50 countries worldwide, Mexico ranked number six (up from 11th place in 2009). Reasons include its proximity to the U.S., the number of dual-language call centers and an 18 percent drop in Mexican wage earnings. It is taking advantage of the so-called Latin American trifecta: “privileged location, abundant talent and competitive spirit.”

Chile is another powerhouse. Political and economic stability, excellent telecommunications infrastructure, skilled labor and a commitment to clear investment rules all contributed to another year on the GSLI top 10 list.

Colombia is a newcomer to the call-center industry. But Colombians’ accents—allowing workers to serve a wide number of other Spanish-speaking countries—and improvements in English-speaking skills make it increasingly well positioned. Government programs that require all schoolchildren to receive English-language training also help provide the skills demanded by the industry.

Since the rise of global call centers in the 1970s, the greatest challenge remains how to balance high costs with pledges to serve customers 24 hours per day, seven days per week. That has not changed with the expansion in Latin America. As anyone who has ever tried to find help for a glitch-ridden computer can attest, the region’s call center boom may be welcome news to job-seekers, but the final judge of quality and efficiency will be the consumer.

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