Manuel Tovar
Minister of Foreign Trade of Costa Rica
San Jose, Costa Rica
www.comex.go.cr
www.procomer.com

LATAM FDI: Today’s discussion is with the Costa Rican Minister of Foreign Trade, Manuel Tovar. His country has had impressive success in attracting FDI over the last decade. Hello Minister Tovar.  Can you please tell us a bit about yourself and your organization?

Manuel Tovar: Good morning, Steve. I’m delighted to share information on foreign direct investment in Costa Rica with you this morning and exchange views on what we have in our hands and our efforts to continue positioning Costa Rica in the international markets.

LATAM FDI: Please provide information about yourself, your biography, and your organization.

Manuel Tovar: I am the Costa Rican Minister of Foreign Trade. I’m also the chairman of the Board of Procomer, our official investment, IPA, Investment Promotion Agency, and Export Promotion Agency. I am a lawyer by education. I specialize in international law and international trade law.

Previously, before becoming the Costa Rican Minister of Foreign Trade, I represented my country before the OECD, first as a negotiator of the accession process for Costa Rica to become a member of the organization and then as a representative as an ambassador of Costa Rica to the organization. I also exercised previous roles in public office during our mission to the European Union in Brussels as the deputy when we negotiated our bilateral trade agreement with the EU. Indeed, before that, I was also a negotiator at the Ministry of Foreign Trade and dealt with dispute settlement issues. I represented the government in state-to-state and investor-state disputes. That’s my background when it comes to public office. However, I also practiced the legal profession in my law firm before jumping to public office.

LATAM FDI: Thank you for that information. Costa Rica has had incredible success attracting foreign direct investment over the last decade, and many people use the term punching above its weight to attract foreign direct investment. What are the current strategies and policies that the government of Costa Rica is implementing to attract FDI?

Manuel Tovar: That’s an excellent question, and I appreciate your interest in addressing the topic of foreign direct investment in Costa Rica that has undoubtedly become increasingly popular over the last years, not only here but also in international markets, where a small, small economy, a small scale economy as Costa Rica has drawn the attention of essential multinationals leading Fortune 500 companies that have chosen us as a partner for doing business. To address your question, I have to go back in time and refer to some specific policy achievements that my country has undertaken over the last 60 to 70 years when we decided to abolish the army back in the day, at the end of the ’40s, the decade of the ’40s. And that allowed us not only to eradicate the appetite for authoritarian and military regimes, as has been the case in many of the countries in Latin America. But we decided to allocate taxpayers’ money to buy pencils, not weapons. To hire teachers and not to hire colonels. So that made Costa Rica a special place where we started investing in people, health care, and education; coupled with that, we had a strong vision for environmental protection.

Manuel Tovar: We only have one planet. There’s nothing more. Planet Earth. There is only one planet to live on so far. And we have to take care of it. We understand that no matter how small it comes to the surface our country is, all the efforts we can undertake to protect biodiversity, tackle climate change, and reduce the carbon footprint have a substantial global impact on mankind. In a small territory of 51,000 square kilometers, we host around 6 % of the world’s biodiversity. That is just a dramatic number for such a country. So, we understood early on that we must play a strong game in attracting foreign direct investment in Costa Rica. We have a significant share of international responsibility for promoting and reverting deforestation, promoting biodiversity protection, and pursuing policies that will go hand in hand with sustainability and a sustainable environment. At the same time, moving ahead, in the mid-’80s, we started to shift from import substitution policies and industrial policy to an open market economy. First, by liberalizing trade unilaterally, then within the framework of the WTO as an active member. As you mentioned, we have been active and punching above our weight when it comes to attracting foreign direct investment in Costa Rica, leading essential discussions within the WTO in Geneva.

At the same time, we embark on a very ambitious trade agenda by negotiating agreements with Mexico and the United States under CAFTA; they are with the Caribbean countries, Chile, Peru, European Union, EFTA countries, the UK, China, Singapore, and Korea. But our government has implemented, adopted, or renewed the vows with this model that has produced and spurred investment into a country. Because excellent and investment policies go together, they work together. We cannot attract the same investment to Costa Rica over the last decades if we don’t embrace open and free trade. So, our government, after eight years of a conservative trade agenda under the leadership of President Chávez, has enacted maybe the most ambitious trade agenda that we have embarked on over the last years, with negotiations with FTA with Ecuador already in place. A couple of months ago, we concluded a free trade agreement with the United Arab Emirates, expanding our footprint in such a sophisticated and vital market with a very high, significant purchase power. We have announced the launch of negotiations with Israel as our next move to promote foreign direct investment in Costa Rica.

Unfortunately, these have been delayed due to the Hamas attack back in October and now the current conflict of COVID in the region. We have reaffirmed our commitment to advance under the Pacific Alliance and become members of the Pacific Alliance. We have also sought membership to the CPTPP, the Transpacific Partnership Agreement, which the United States went through a few years ago, but for us, that continues to be a very important block of nations. Indeed, Japan is the only G7 economy with whom Costa Rica has no free trade agreement. Of course, we have also engaged with a very interesting set of countries like Chile, South Korea, Singapore, and New Zealand under the DPA, Digital Economy Partnership Agreement, which is a very pioneering, innovative agreement that seeks to advance the digital economy across all the disciplines, the digital economy. We recently concluded the Agreement on Climate Change, Trade, and Sustainability with Switzerland, Iceland, and New Zealand, which seeks to harmonize the trade and environmental agenda with the globalization of ecological goods and services. And, of course, we haven’t been shy in raising our hand and expressing our interest to, when the time comes, become part of the USMCA family because we have evolved from the times that we negotiated CAFTA over 20 years ago since we negotiated that agreement which has been of great importance of increasing foreign direct investment in Costa Rica.

We became an OECD partner like Canada, Mexico, and the US. We have shifted our economy from a few agricultural commodities to advanced manufacturing and services, where we now have medical devices representing more than 40 % of our export goods to the world. So, we have changed as a country, as an economy, and as a society. And indeed, our trade platform is linked to those partners in North America. So, we see the Americas Act with great enthusiasm; this legislation introduced bipartisan, bicameral, which speaks about opening up USMCA to partners such as Costa Rica. We know that elections are now coming on in the US, and trade is never a sexy topic to discuss or advance in the middle of a campaign. However, we have seen interesting moves in Washington, seeking to pay more attention and seek further economic integration with the Western hemisphere. America’s Party for Economic Prosperity is another element around the table. So, throughout our visits to Washington, we have seen an increasing appetite to further engage with countries like Costa Rica. Another one, of course, from our strategy is investing in human capital. That is the main factor that has upgraded foreign direct investment in Costa Rica. That has allowed us to attract companies such as Intel. That has allowed us to become a strategic partner for the United States under the Chips and Science Act on Semiconductors. As I mentioned, that has allowed us to position Costa Rica as a regional leader in medical devices. We just recently announced the arrival of Johnson & Johnson to Costa Rica, which would create around 6,500 jobs. So, all of these investments require human capital, and we recognize that we have to meet the needs of industry. This is a global challenge. There is a worldwide need for talent. We’re confident in pursuing policies that would allow us to increase the source of human capital further. And, of course, as I mentioned, we renew our vows and refer our commitment to the type of country we are. Our country pursues sustainable and robust environmental obligations and ensures the rule of law. International companies, multinationals, and investors will only place their money where they feel safe. You wouldn’t put your savings in a bank that doesn’t grant you the certainty you need.

Of course, we must reform Costa Rica’s commitment to the free trade zone regime and the schemes and incentives we provide, including tax incentives. We must also reform the type of country we are, especially in times of unrest, not only globally but regionally, as you have seen, unfortunately, in Venezuela and other countries in the region.

LATAM FDI: You mentioned medical devices as a success story in foreign direct investment in Costa Rica over the past decade and referred to upcoming opportunities for semiconductors in the country.

Typically, most investment in Costa Rica has centered around the Greater Metropolitan area, which is the San Jose environment. I know you have a program now in which you’re seeking to diversify the geographic location of companies that invest in Costa Rica to areas that you refer to as outside of the Greater Metropolitan area. Please tell us a little about that initiative to promote further foreign direct investment in Costa Rica, what progress you’re making, and how you see that as a benefit to Costa Rica and its population in general.

Manuel Tovar: Absolutely. Since the very beginning, early on in our administration, back in May 2022, the President, from the very first day, instructed policymakers and ministers to address the challenges of the most vulnerable regions in Costa Rica, where you find the most vulnerable populations, the coasts, the rural areas. So, we must bring about progress and well-being to those in need of better living conditions and those whose livelihoods are not similar to those of the greater Metropolitan area. So, we understand that we must level the playing field nationwide for foreign direct investment in Costa Rica. That’s why we pursued a very interesting reform regarding FDI, among many other public policies that seek to improve the lives and livelihoods of the people regarding access to water when it comes to infrastructure, education, and other critical domains. Also, we have pursued a very ambitious reform that grants further tax incentives to companies located beyond the Greater Metropolitan Area. This describes the limits of what the Greater Metropolitan Area is and what is not. The jurisdictions are very well-described in a robust legislation that we passed early on in our government.

From extending the periods to which we grant the free trade zone status to lowering labor costs by reducing the fees companies’ employers should pay to the healthcare system, La Caja, Costa Resistencia Seguro Social. So, we understood that we needed to, at the same time, advance in digital infrastructure to provide fiber optic and provide further access to water to improve the ports, the airports, and the roads. We also understood that we had to develop other innovative approaches to make foreign direct investment in Costa Rica in these places more attractive. So now we’ve seen the efforts under these new schemes that we have provided. We have more than doubled but tripled the arrival of investment projects beyond the greater Metropolitan area over the last year. That’s one of the reasons we had to shift from an And adopt and design a new FDI strategy that we launched about a year ago under the execution of Procomer. So, we have also identified every region’s needs, challenges, and opportunities. We cannot apply a one-size-fits-all solution for all of the regions. We have to map them.

We have to see that it’s different to invest in the opportunities that we have or the challenges that we may find in the coastal area, close to ports, and then somewhere deep inside the mountains. So, we have mapped all the different regions outside of the Greater Metropolitan Area and identified the challenges and the opportunities so that our promoters, our economic development staff, can comment when they go and companies to offer them a value proposition according to their needs and expectations. So having said this, we have seen how, for example, the development of second-tier cities is growing around Liberia in the northern Plains in San Carlos or in the Southern region of Pérezolidón, where we see exciting clusters of further foreign direct investment in Costa Rica, for example, on technology and communications services. We see Liberia in advanced manufacturing with Coca-Cola’s newest and most modern factory in Latin America. So, on semiconductors, I think we find a lot of potential in services when it comes to positioning these second-tier cities, which are located outside the Greater Metropolitan Area, as attractive hubs for investment. At the same time, other regions that have a lot of potential in agro, where they have the conditions, the weather, where they have the plantations, to bring investment in an agro-industry that can undoubtedly provide jobs, especially to women, which we have seen evidence that many of them have had the opportunity to jump into the labor market and to work in important companies located, for example, in Guanacaste, in the province of Limón, to say so.

LATAM FDI: You alluded to Procomer, the organization that represents foreign direct investment in Costa Rica. Since your time is limited today, I’d like you to explain to our listeners what support structures are in place for foreign investors once they are established in Costa Rica and what role Procomer plays in delivering that support.

Manuel Tovar: Procomer is a well-known institution globally known for its excellence and outstanding workforce. We have provided Procomer with more resources. We have provided Procomer with an interesting network of offices around the world. Procomer has offices in Dubai, Tel Aviv, Seoul, Tokyo, London, Madrid, Rotterdam, Texas, California, New York, Washington, and Mexico, to name a few. We have 27 locations, 27 countries, and different countries, and we continue to expand our footprint worldwide. But at the same time, when companies choose us as partners, as destiny, the role of Procomer is to walk them through, grab on your hand, walk them through the whole process, from the soft landing to the granting of the free trade stream regime. Procomer is the institution that grants the free trade stream regime status to companies that certainly meet the criteria under the law to operate as such. But we also have a strong team that provides after-care service that is ready to assist companies not only in their soft landing but also throughout the whole operations; whether they face a speed bump along the way, they will be ready to assist in coordinating with the relevant institutions and get things smooth and done.

Also, we run the VUI, the single investment window to facilitate foreign direct investment in Costa Rica, where we streamline and digitalize most of the procedures. We’re bringing more and more institutions and procedures under this single window. Indeed, this is something that has had a significant impact on investment. It reduces costs and time. And, of course, we have a team that supports companies throughout the registration of permits, health permits, and environmental permits. Procomers support, assist, and walk hand in hand throughout the entire process, from self-landing throughout the operations to our after-career service.

LATAM FDI: To keep you on your busy schedule today, we find that listeners often have questions after absorbing our speakers’ information. I know that you have a profile on LinkedIn. Please include your profile in the transcript section of the page that hosts this podcast so that anybody with a question can go directly to you.

Manuel Tovar: Absolutely. Absolutely. Feel free to do that. We’re always open to business and to respond to people’s inquiries. So part of our success is precisely that, being open markets, being small. And small is beautiful, Steven. Small is attractive because those who know Costa Rica know each other in Costa Rica, for good and bad. And it has its process and cons. But I will stay positive in the sense that here, with just having a phone call away, playing with the rules, with the legal framework under the rules of the game, with a simple phone call, We get things done. Procomer has a very successful rate of after-care and a very successful rate during the soft landing. Significantly, there was a very successful rate when granting the free trade stream regime. However, it could be a very complex situation that requires the attention of a minister. Thankfully, their success rate is very high, but if that is the case, I don’t hesitate to support Procomer by grabbing a call from my peers at the Ministry of Health or Environment and getting things done.

If I can’t manage right and succeed in sorting out a specific speed bump, then the President of the Republic will jump ahead, make that call, and sort things out. We always follow the game’s rules because our country’s legal framework is critical. It’s part of our DNA. But we walk the talk when we say international investors will use it without a red carpet-based red tape. Our government has a strong sense of allergy to red tape. We have deregulated many absurd regulations that have existed in the air for years and decades. We have embarked on a very frank dialog with the industry, the multinationals, investors, the chambers, the AmCham, and the It’s shown with the software as the different chambers operating in Costa Rica. And we sat down with them at the very beginning and said, Listen, why does it hurt you? What can we do better for you to ease business? We’ve seen how Costa Rica has made substantive progress in the doing business ranking. We’re not satisfied. We always continue to see what we can do better.

This is an open discussion, open dialog, and permanent dialog that we have with the industry and the stakeholders to continue deregulating absurd degrees or regulations that, in a way, in the past, have represented some obstacles for business. So that’s our pragmatic way of doing business. We’re open to trade. We’re open. We’re convinced that for a country like Costa Rica, since our very foundations as a Republic, we started exporting coffee for such a small market, and with a very diverse value proposition, Open Trade has been a cornerstone of our development and a pillar for FDI. So that’s what we’re trying to continue pursuing, Steven, the type of Costa Rica that we were, but trying to become a better version of ourselves.

LATAM FDI: Well, that’s great to hear. It’s great to see your success. Thank you for being with me. I know you’re very busy, and I appreciate your dedicated time to our conversation today.

Manuel Tovar: Thank you very much, Steve. We are delighted to continue talking to you and discussing foreign direct investment in Cosa Rica further. We’re conducting exciting things on semiconductors. As you know, Secretary Ramando is busy in Costa Rica and has endorsed our accession roadmap to our semiconductor roadmap. And, of course, the declaration by the President of this industry as of national interest has us as a fundamental and critical stakeholder in the hemisphere. And where we will come is the Silicon rainforest of America. I am willing and delighted to continue engaging with you, Steve.

LATAM FDI: Well, thank you, and have a wonderful day.

Manuel Tovar: Likewise. Have a great day.

Juan Carlos Mathews
Economist and Former Minster of Foreign Trade and Tourism of Peru
Lima, Peru
juancarlosmathews@gmail.com

LATAM FDI: Hello. We’re honored to have Juan Carlos Mathews, a distinguished economist and former Minister of Foreign Trade and Tourism for Peru, with us today. Hello, Juan Carlos. Could you share your background before we delve into Peru’s foreign direct investment opportunities?

Juan Carlos Mathews: Thank you for your invitation, Steven. As you mentioned, I am an economist. I have mainly worked in the private sector in international trade. I was also the Peruvian government’s vice minister of SMEs and industry. Until recently, I was the Minister of Foreign Trade and Tourism. I have also been involved in academia, working for two private universities in Peru. My experience spans international trade and the private and public mining sectors.

LATAM FDI: That’s interesting. Given your knowledge, which is very broad, obviously, what sectors do you consider to be the most promising for foreign direct investment opportunities in Peru? Are there any emerging industries or markets that are particularly attractive?

Juan Carlos Mathews: The ones referred to are in the mining sector, mainly because 60% of Peru’s total exports are minerals and metals. We are still developing different projects, in most cases through joint ventures with some of the prominent investors in this field.

For example, Newman is an Anglo-American investing in Quellaveco, a big project here. But during the last decade, our agro exports have experienced exciting growth. I’m talking about fruit, not only fruits and vegetables, our superfoods, but also seafood products. We are increasing the production with excellent levels of quality, and in most cases, through foreign direct investment in some cases and joint ventures in others. That big area of agro-industry and seafood products is also an attractive sector in which to invest. Some small sectors are rolling very fast. We refer to, for example, the export of software. In Peru, we are developing different software for USA, Spain, and India companies. We are a very open economy. In most cases, we invite investors here in Peru. Through joint ventures, they are exporting the products to those countries where we have a free trade agreement.

For example, we have been negotiating a free trade agreement with India and the USA as a big market. They are thinking not of Peru; they are thinking of the USA. But by taking advantage of foreign direct investment opportunities in Peru, they are going to produce it, in some cases, at a lower price, and in all cases, at a lower rate from Peru to sell in the US. Almost all cases, there is no import tax due to our free trade agreements. For example, the mining, agribusiness, and software sectors are interesting areas where we have grown fast during the last few years.

LATAM FDI: In particular, regarding mining and agribusiness, before we started recording, we were talking about the Puerto de Chancay project.

Juan Carlos Mathews: Yes.

LATAM FDI: Can you briefly explain how that project will facilitate Peru’s overseas sale of mining and agricultural products?

Juan Carlos Mathews: Today, the main port in Peru is  Callao. Callao represents more than 80% of Peru’s total trade and imports. We have two big global players operating there: APM Terminals from Denmark and BP World from Emirates in the southern part of the port. They have invested a lot during the last few years, but we have discovered the advantages of developing this port, which is 76 km north of Lima and very close to Callao. Depth is one of the significant advantages and a positive for foreign direct investments in Peru. We can receive a vessel with a capacity of 21,000 containers. It’s a very, very big vessel. It means a reduction in terms of cost because of economic skills. However, the main advantage is that we can go directly to Asia, particularly China. That’s why the slogan from Chancay to Shanghai exists: the name of our port to Shanghai, the port in China. It represents a reduction in terms of rate of 10 days. Instead of 45 days, it will take 35 days to move from Chancay to China. In the case of products from Brazil, instead of going through the Panama Canal, there will be a reduction in the rate of 16 to 17 days, which is quite a lot. This is another positive for foreign direct investment opportunities in Peru.

It’s very, very important. The idea is to transform it into a hub for South America. We are considering the demand for Peruvian products and goods from different countries.

LATAM FDI: One of the most important things companies that want to invest in a country consider is the workforce. Could you describe the quality and availability of the Peruvian workforce? Are there particular skills in industries where Peruvians excel?

Juan Carlos Mathews: Yes, maybe you can find some differences because, in the mining sector, we have… Well, it is improving the labor in that sector in Peru.  In some cases, the investors also bring people from around the world. We have a lack of capacity in that field, specifically. But in the case of agribusiness, we are also teaching to some of our neighbor countries because we have developed a very strong agro-industry due to our climatic conditions, excellent position, and the possibility of exporting the product during the entire year. We have created a robust industry. In northern Peru, companies can be here, in California, or wherever because they have global standards. In that area, in the agro-industry, I think we have enough well-formed labor used in the supply chain. A difference with the mining sector is that we can find some areas where we need labor from overseas.

LATAM FDI: What’s the relationship between labor and business? For instance, have any recent labor market reforms taken place or may take place in the future that could affect foreign direct investment opportunities in Peru?

Juan Carlos Mathews: When I was in the government, I saw a complete reform of the labor system in Peru. But it is tough to implement because always when you have it ready, from the technical point of view, it is prepared. But from the political point of view, it’s a big issue. You don’t know when the right moment is. You will never find the proper time to do it. You have to do it because you have to do it, but you have to do it, considering that you will face some social problems. In some cases, for example, in Peru, you can start working in a company and immediately have one month of vacation. That’s too much. Everybody’s used to it. It’s a right that the people think they have and are unwilling to accept changes in that instance, to mention a specific point. However, if you compare the labor costs for an entrepreneur, it is usually higher than in all the other countries in Latin America. So that’s a weak point. That’s an essential question because facing that problem is necessary.

I think a new government will face the possibility because these reforms should usually be implemented at the beginning of a government, not at the end. In 2026, we are going to have elections. I think the new government will be able to look at Peru compared to other countries. According to the World Economic Forum, we are in an unfavorable position in education, health, infrastructure, science and technology, and the solidity of institutions. Within these five significant areas, you can identify some others, such as the one you mentioned and the labor related to this. I agree that it is a crucial point, a critical reform that has to be done. But as I mentioned before, it is tough to expect a reform like this to happen in the next one and a half years.

LATAM FDI: What incentives does Peru offer to attract foreign direct investment? Are there any tax breaks, grants, or other benefits from which foreign countries can benefit?

Juan Carlos Mathews: Yes. The foreign investor has the same conditions as a national investor. The same conditions. But maybe in two months or earlier, you will have a new law referring to the economic, special economic zones. We have had free zones here in Peru throughout history, but not exactly as they work in the USA and different parts of the world. I have been participating in the law, and the idea is to have clear incentives. The problem with incentives here in Peru includes tax incentives. The Ministry of Economy and Finance is sometimes unwilling to accept this incentive. Of course, we showed them the cost and benefit of those measures. You are taxing companies that are not in Peru. They are going to generate income for Peru. So, it is understandable that we have to give them incentives. You are competing with other countries at the same time. We have natural incentives. In some cases, I have been in different places in the UK, Australia, and Spain, talking with investors, and most of the questions referred to macroeconomic stability and legal security.

But there are more than incentives, tributary incentives, or financial incentives. But in some cases, it is a need. If you are working in the jungle of Peru or the highlands of Peru, in some cases, you need this incentive, or otherwise, you will not be competitive. Our advantage is that, in some cases, our resources are so vital that we can compete without offering some tax incentive. But I think if we have the opportunity to talk again in less than two months, we will have a clear idea of the law that will be launched soon.

LATAM FDI: That’s a good reason to have another conversation shortly. But what about political stability in Peru? How has Peru’s political stability recently affected the business environment and economic policy?

Juan Carlos Mathews: Yes. Our group is extraordinary for some people because you can see the macroeconomic indicators not during the last year but over the previous 20 years. You will see that our economy’s performance is better than the average in Latin America. In some cases, indicators like inflation are the best in Latin America. This is good for foreign direct investment opportunities in Peru. But at the same time, we have had six presidents in six years. How can we say we have political stability? We can say we have macroeconomic stability, but it does not sound logical because the economy and politics are linked. But mentioning this, I have to recognize that we are always in similar situations. You cannot be bored in Peru. You must read the news constantly because you will be aware of different things daily. I think that, yes, we are having a lot of discussions and uncertainty in terms of the political arena. But in the end, the entrepreneurs know how to deal with that. When I talk, for example, with Anglo-American, this is a massive company that is investing in Quellaveco in the mining sector.

I have been talking with them twice in the UK and the Emirates in the last six months with the CEO, and they were planning to expand the investment in Peru. All the questions refer to macroeconomic stability and legal security. Some questions refer to the political situation, but understanding that it is almost standard in Peru. So it is not affecting decisions too much. But I have to be frank. Of course, the entrepreneur’s expectations and trust in the system have been affected. So, it is recovering. Despite the situation in Peru, it is recovering slowly, unfortunately, because I think the flow of foreign and domestic investment would undoubtedly be higher in other conditions.

LATAM FDI: What advice would you give to parties looking for foreign direct investment opportunities in Peru for the first time?

Juan Carlos Mathews: My best advice is to believe in a joint venture. I am a believer in strategic alliances for both parties. I mean, for the Peruvian part, because it is going to receive know-how from the company that comes from the USA, for example, and through a USA company, because we know how Peru works better. If you look at the figures showing many high levels of corruption, some people do not trust the judicial system and prefer not to invest in Peru. But if you do it through the correct partner, you can understand that there are some routes to do it correctly, and the risk would be reduced significantly. The critical issue is to select the correct partner. Not any partner, but a correct one. But my advice would be in that sense because I have seen a lot of problems, even with Latin American companies. You can hear in Latin America that Latin America is only one. It’s not only one. There are some significant differences between Colombia and Peru, Peru and Argentina, et cetera. I have seen a lot of Peruvian investment in those countries, and investment from those countries in Peru can have many problems.

It is not so easy. You have to understand even the idiosyncrasies, the punctuality, and many other things that are characteristic. In some cases, it is good, and in some cases, not so good, but through a partner, you can do it better, I think, or at least a representative that can translate all you have, the reality of Peru.

LATAM FDI: You mentioned changes in government, but despite those changes, could you comment on how open the Peruvian government is to collaborating with foreign businesses and addressing their concerns? Did they work well with business?

Juan Carlos Mathews: Yes. For example, I was the Minister because I talked clearly with the President and the Prime Minister to understand if they favored the investment. If they told me I was not in favor of the investment, I would say, Thank you very much, I won’t participate. It’s as straightforward as that. I’m a professional, and I’m not a politician. I received support from the government during this year that I have been working for the government. The idea is that we have 22 free trade agreements. They include investment protection, and we are negotiating six additional ones with Hong Kong, the mobilization of the free trade agreement with China that will be ready in the next 15 days, and the negotiation with India, Indonesia, the Emirates, and Morocco. That reflects our belief that the open economy is essential for our development.

LATAM FDI: Given that and Peru’s openness to opportunities for foreign direct investment, how would you compare Peru to other regional countries in terms of its ability to attract foreign investment? What sets Peru apart?

Juan Carlos Mathews: Yes. In some cases, I have to say, unfortunately, that in some cases, the great advantage is the natural resources, location, and the free trade agreements we have. I said, unfortunately, because I think it is a need of what you mentioned before, specific incentives to move faster this investment in different sectors that we need to improve. But the location is critical. That’s why we were talking about Shanghai and ports, not only the port but also the airports. We will have a new airport at the end of the year in Lima, in Callao, and it will be ready at the end of December. We are improving the airport in Cusco, which will be prepared in two years. We have habilitated two more in the jungle and the highlands. We are investing in infrastructure, and that keeps considering the location of Peru with this investment in infrastructure is a crucial point. Natural resources, of course, we have to improve the specific promotion of some incentives. Still, with the conditions that we have, even the foreign investor, the same conditions as the national investor, I think we are an attractive place to do it.

As I mentioned, the investors are asking for macro-stability and legal security, but in some cases, they also ask about the political situation. I’m trying to say that in the short term, if we have a clear idea of what will happen in the coming five years for our country, there will be a very significant increase in investment. I have been, for example, when I was in, I think it was in New York, and I was taking a coffee after a conference, I’ve referred to a portfolio of investment. One of the investors was talking with another one, and they said that two countries should invest in Latin America: Peru and Colombia. We have to do it right now because we will have one or two years of advantage when the competition comes. After all, it is going to change for good. They mentioned this, not me, as a Peruvian, but the two investors participating in the forum. That’s the impression that, in some cases, some investors have when they evaluate the complete situation in Peru.

LATAM FDI: Well, we’ve covered quite a bit of the topic in this podcast for the past 20 or 25 minutes. We find that listeners to these recordings often have questions after they’ve absorbed the information that has been presented to them. We like to make our guests available to people with questions. How would somebody with a question from what they heard in this podcast contact you? Would that be something that you’d be willing to do?

Juan Carlos Mathews: Yes, I can give you… Well, you have my contact information, and you can transmit the questions to me. I would be glad to answer them.

LATAM FDI: Well, what we might do, and what we usually do for our guests, is put a link to their LinkedIn page in the transcript section of the podcast so that people can go directly to you. We’ll add your phone number and email address. Is there a website that you have?

Juan Carlos Mathews: Yes. I said yes because I was referring to the institution where I work, but I don’t have a personal one. However, I can put my phone number and my email.

LATAM FDI: Okay, we’ll do that. We’re happy you chose to speak with us today. We wish you a lot of luck in attracting foreign investment in Peru and look forward to having a future discussion with you when you know more about the special economic zone law being worked on in Peru.

Juan Carlos Mathews: No, thank you very much. It has been a pleasure, Steven, talking with you. Bye. Take care.

Carolina Rosales Gonzalez
Executive Director
Invest in Cartagena and Bolivar
Cartagena, Colombia
crosales@investincartagena.com

LATAM FDI: Hello. Welcome to this episode of the LATAM FDI podcast. Today, we have Carolina Rosales-González with us. Carolina is the executive director of an organization in Cartagena, Colombia, called Invest in Cartagena and Bolivar. Welcome Carolina. Please tell the audience a little bit about yourself and your organization.

Carolina Rosales-González: Thank you very much, Steven, for having me. As you were saying, my name is Carolina Rosales. I’m the Executive Director of Invest in Cartagena and Bolívar, the local Investment Promotion Agency of a beautiful region on Colombia’s Caribbean Coast. It’s been a year since I assumed the position. Believe me, Steven, working for a city and an area that is full of opportunities and with this enormous potential, is very gratifying. I’m sure we will talk about the opportunities to invest in Cartagena and Bolivar through this podcast. It is a pleasure. I’m thrilled to be here. I expect to give you all the highlights needed to invest in Cartagena and Bolivar. So, thank you very much for having me. Thank you very much for this opportunity to promote our territory.

LATAM FDI: Well, it’s a pleasure to have you here. Your region is fascinating, and I’m sure it’s beautiful there in Cartagena, being in the Caribbean. That being the case, how does its position in the Caribbean affect foreign direct investment that arrives in your region? And how do these activities contribute to the growth and development of investment in Cartagena and Bolivar?

Carolina Rosales-González: Well, I would like to give you a context about the Colombia FDI flows, and then we can get a more profound overview of investment in Cartagena and Bolivar. And, of course, we used the strategy to increase the number of investment projects in our territory. So, first of all, in Colombia, FDI flow has grown in the last eight years. This is very positive for our country compared to other situations in Latin America and worldwide. The main sectors where FDI has been focused in Colombia are financial business services, the oil and gas sector, which makes regarding our offer in Colombia, and then the transport, restoration, and communications sector, half the 10% of the share of the total of the FDI flows receiving in Colombia the past years. Regarding investment in Cartagena and Bolivar, according to the data report by Invest in Cartagena, the sector’s investment interest for the last years has been on infrastructure, followed by renewable energies, and 50% of the total has focused on software and IT services. The reason for the data is significantly related, Steve, and this information drives how we run the investment strategy from the agency’s perspective. 

As you said, Cartagena and Bolivar are strategically located on the Caribbean Sea. So this means that Cartagena and Bolivar have fluid, maritime, and river connectivity. We are just three days, for example, by boat from the Coast of Florida and five days from the East Coast of the United States, also our leading commercial partner. We are only a two-hour flight from Florida and one hour or maybe less to Panama. That is 45 minutes, if I’m not wrong. And we are only 265 nautical miles from the Panama Canal. For that reason, Cartagena and Bolivar are the most connected cities on the Colombian Caribbean Coast. Have you been to Cartagena before?

LATAM FDI: Unfortunately, I’ve never been to Cartagena.

Carolina Rosales-González: You have to. Cartagena and Bolivar are regions full of natural attractions. We have a natural bay, for example, and we have an authentic and magnificent historic center that anyone must have the opportunity to come to visit. We are the jewel of the crown in the tours offered in Colombia. Cartagena is a World Heritage site that was declared by UNESCO. We also have two additional World Heritage locations in the Department of Bolivar. They are Mompós, and Palenque. Those comparative advantages are related to our area, and I will mention many other reasons. From the agency Invest in Cartagena and Bolivar, we have prioritized seven sectors in which Cartagena and Bolivar represent an investment opportunity. The leading sectors in our investment include opportunities in terms of infrastructure; Cartagena, for example, is the first leisure and lovely destination in Colombia. We have a consolidated hospitality investment in Cartagena and Bolivar. We have important brands such as Accord, Hilton, Hyatt, Marriott, etc. So, indeed, Cartagena is the Jewel of the Crown. You have to visit one day. If you are in the United States, you are very close, as I said before. Another thing important about Cartagena’s investment opportunities related to our location is that Cartagena is the most efficient port area in the Caribbean.

We have sixteen different terminals with different vocations, but one of those terminals owned by Group Port of Cartagena has been working as the third most efficient port in the world. So, it is essential to highlight Cartagena’s logistic platform with this natural advantage. Also, we have to start expanding our local airport. And there is also a new airport project that will have all of our capacity now. It will also be the brand new cargo airport on the Caribbean Coast. This is why Cartagena is consolidating itself as an export platform for the manufacturing industry and a logistics hub. Regarding the manufacturing sector, I don’t know if you know about that, but we host the most critical and sophisticated refinery in Latin America. Have you heard about it?

LATAM FDI: No, I wasn’t aware of that.

Carolina Rosales-González: Okay. We have the most sophisticated refinery. And since then, we have developed a strong value chain with well-known international chemical brands. We are the most vital city in Colombia in the petrochemical sector. We have brands, for example, like Dow, Axalta, Yara, and Pasco Wave in Cabo. Cartagena and Bolivar are the cities after Bogotá, Colombia’s capital, with the country’s most free trade zones. You know that a free trade zone is a mechanism we use to attract investment in Cartagena and Bolivar. All those things improve critical manufacturing processes, such as construction materials, metalwork, and the working industry that uses our region to reach new international markets. So this is another reason why Cartagena has all the potential to attract new investment in Cartagena and Bolivar. In addition, this is very particular to our city; the country’s essential shipyards are located in Cartagena, of course. It is related to our location. The data shows that 85% of the naval repair workshops nationwide are focused on the Department of Bolivar. So, this is Cartagena, half a very Navy history or past. So, we developed the city’s past and built this strong shipyard industry.

We are very focused on or specialize in constructing Navy ships for the Colombian government and other international governments. Do you have any questions about why you have to choose to invest in Cartagena, Bolivar, and all the sectors I have mentioned?

LATAM FDI: Well, one of the first things that people ask about a location, besides the significant economic activities, is what educational infrastructure a place like Cartagena and Bolivar has. How does Cartagena and Bolivar support workforce development? Can you give us a little idea of how that happens?

Carolina Rosales-González: Yes. I will finish the idea if you want because I have mentioned two promising and trending sectors leading our investment in Cartagena and Bolivar: the IT industry and the energy transition. It would be best if you could talk about our skill labor because it’s very related. I’m going to finish this idea, and then I’m going to answer your new question. The IT industry is significant. We have another natural advantage: Cartagena has five transoceanic cables that allow an efficient wireless connection to the Internet. And about skilled labor, the city can now have a bit of difficulty compared to other important cities in Colombia or worldwide. Concerning energy transition, Cartagena is one of the four cities with the highest operational capacity and production of renewable energy. In the north of the Department, we also have the advantage, like in La Guajira, of having significant potential to generate wind energy. Cartagena also has two green hydrogen pilot plants in Colombia. So, the previous strategy I mentioned to invest in Cartagena and Bolivar contributes to our economic development in diverse ways, especially in employment generation.

So that’s why I wanted to finish that idea: attaching the employment generation to our education offer is essential. Also, the projects in Cartagena and Bolivar often focus on employment and opportunity generation in the area of influence where they develop. This also positively impacts the communities and Cartagena and Bolivar society. So that is important to mention. On the other hand, we are looking at those projects to invest in Cartagena and Bolivar; those projects integrate very, very accurately into the local productive chain so that the local providers can see the highest quality standard to meet the international companies’ demand. Those things prepare our skills, our specialty, and our educational offer. An important thing you must know about the Cartagena workforce is that according to the Ministry of National Education data, the labor force in Cartagena is mainly condensed at the university level. A little more of the 50 % are at the university level, all the way by technological level, and then we have the master’s degree level with the total participation on this part. The gender level is fundamental, and I like to mention it a lot because the gender level, 56 %, sorry, of the graduates of Cartagena and Bolivia are women, and the remaining percent are men.

Females dominate the workforce in Cartagena and Bolivar, and the principal areas of knowledge focus on economic science and urban engineering. This takes excellent value because it’s very focused on Cartagena’s industrial vocation, especially in sectors where growth and development have occurred—for example, renewable energy, the Navy, training, and the IT industries. So, as you can see, the workforce is very prepared to meet the needs of companies that seek to invest in Cartagena and Bolivar.

LATAM FDI: Can you provide examples of foreign companies that have chosen to invest in Cartagena y Bolivar? And what factors influence their decisions? What benefits have they derived from operating in the region?

Carolina Rosales-González: The benefits: Maybe we can talk a little bit later about the actions that our local governments are taking to improve the relocalization of companies because Cartagena and Bolívar have launched a tax incentive policy so we can talk about that before. But I don’t know if you want to hear about our natural advantage, and then we can discuss the tax incentive programs. Let me know, please.

LATAM FDI: That’d be great.

Carolina Rosales-González: Okay, so I think one of the main reasons why an investor could choose to invest in Cartagena and Bolivar is because our strategic location, as I was saying, Cartagena and Bolivar, is recognized by the container port performance index as the third more efficient port in the world. We can connect to more than 140 countries. We can reach more than 840 ports around the world. For any company that may be looking for an export platform or a site that could allow us to get another Cartagena, it is the best option for them in Latin America. Also, we were talking about skilled labor. There is a fact I like to mention a lot. All the investors must consider that because Colombians, not only Cartagena but also the Colombian workforce, are very special. A recent study has concluded that Colombian workers are satisfied with their work lives.

LATAM FDI: Maybe you could fill us in on what that means.

Carolina Rosales-González: Okay. It is a study that measures people’s happiness levels at work. In Colombia, 88% of the employees declare they are happy at work. Beyond the remuneration, they value the sense of belonging and the emotional side of employment. This is a crucial key driver in improving investment in Cartagena and Bolivar. For me, it’s valuable because you can have the people, but if they are not motivated, your project may not work. This is an essential fact about our happiness at work, not only in Cartagena and Bolívar but in Colombia.

LATAM FDI: How would you characterize issues beyond human resources and the industries in Cartegena and Bolivar? What about the region’s transportation, logistics, and connectivity infrastructure? How does it facilitate business operations, and how does it act to impact the companies that invest in Cartagena and Bolivar?

Carolina Rosales-González: As I was saying, Steven, we have the most efficient port in Colombia. We have the third most efficient port in the world. We also have a natural bay with, I don’t know, sixteen different terminals with various locations to move cargo. We have many free trade zones that, of course, are facilities to look for a site to operate with tax incentives and an excellent logistic infrastructure. We will soon have a brand new airport, allowing Cartagena to have the intermodal logistics. Yes, the intermodal logistics, because we are experienced in the maritime sector, but we must develop expertise in air cargo. This new airport will allow us to move oversized cargo through the sea and develop new sophisticated industries that use less volume to reach another market.

LATAM FDI: The final question I’d like to ask is, what has the government of Cartagena and Bolivar done in terms of initiatives and policies to support both foreign and domestic investors, and how effective have they been in creating a favorable business climate?

Carolina Rosales-González: Okay. Regarding the business climate, Steven, progress has been made for companies that invest in Cartagena and Bolivar in simplifying and making efficient the procedures that all the investors must perform when landing their operations in our territory. The achievement that we can stand out in this company is creating and implementing a business platform, a one-stop window called VUE, or Ventanilla Unica Empresarial. This mechanism allows all investors to conduct their procedures, consult benefits, news, and more about our city’s business creation. Also, we developed a technological tool, a one-stop window, but for the construction sector. So, this technological platform allows, for example, an investor to know the entities of control and the steps they have to take to fill out all the requirements on some services that, for example, you have to do to build a hotel or to create a property. That technological advantage or development makes the information and guidance an investor needs when arriving to invest in Cartagena and Bolivar easier. Fortunately, we can achieve that. Another significant technological development is the investor information system we developed with Invest in Cartagena and the mayor’s office.

The platform allows all the investors that wish to establish in our city to have a guide that completes step by step the regulation, the needs of business creation, all the requirements for it, for example, obtained permits, and all the things that you have to do to form an establishment here in Cartagena. Another important thing I mentioned before is Bolivar, as a department, launching nine municipalities of the Department, local incentives related to exemption on local industry and comfort tax, and the unified property tax. So, in the Department of Bolivar, we have forty-six municipalities, and in nine municipalities, we have those incentives. Recently, the mayor’s office presented a project also to improve the relocalization of companies seeking to invest in Cartagena and Bolivar, giving the same time tax exemptions on industry and commerce tax, and the unified property tax, and urban tax to those companies that are located in Cartagena, generate local employment, and do essential amounts of investment in our city. So now we are waiting for its approval.

LATAM FDI: Well, we got to the point where, in a very short period, we’ve covered many areas about investing in Cartagena and Bolivar. Our experience is that listeners to our podcast often have follow-up questions after hearing the information our speakers have presented. We like to create an environment where our listeners can converse with our presenters. That being said, is there any way that anyone who has a question about what you’ve said and perhaps a desire to invest in Cartagena and Bolivar, is there any way they can contact you?

Carolina Rosales-González: Yes, of course. Indeed, we have our social media contacts, but I don’t know if I can write you down my email or put it anywhere visible on the podcast platform, my contact email, or my number. So, anyone with a question interested in Cartagena would be received with the greatest happiness from me and my team. We hope that that occurs. We hope all the highlights we provide here give all the investors a valuable alternative to invest in Cartagena and Bolivar. We can continue generating value from the agency and betting on our region’s and country’s growth. For the entire audience, Steven, it is, please, a big greeting. If you are concerned or interested, please get in touch with us at this email: crosales@investincartagena.com. This is my personal. I will be very attentive to any request, and our agency will be very happy to support you and make your decision to invest in Cartagena and Bolivar easier, and, of course, help you achieve your business goals.

LATAM FDI: Okay. Typically, we’ll do it in the transcript section of the podcast; if it’s okay with you, I’ll put your name and make it a link to your LinkedIn page so that people will have it to you. I’ll provide the email address you mentioned and a link to your website so that anybody with any questions can go straight to you and get the answer.

Carolina Rosales-González: That would be great.LATAM FDI: Well, thank you for joining me today. I appreciate it. I enjoyed our conversation, and I hope you have an excellent rest of the day.

Carolina Rosales-González: Thank you very much, Steven, for the time, for the generosity, and for the opportunity for this space to present the Cartagena and Bolivar potential. We hope everything we said in this post is helpful to the investors. And we are very attentive to anything that you may need. Cartagena is waiting for you. Cartagena and Bolivar are waiting for you. So thank you. Thank you very much. Have a good day, too. Thank you. Bye-bye.

Sebastian Ortiz Montaner
Economist and Diplomat
Paraguayan Embassy
Washington, D.C.
sortiz@mre.gov.py

LATAM FDI: Welcome, listeners, to another episode of the LATAM FDI podcast, where we bring insightful conversations with influential leaders in the Latin American region, particularly in economics. Today, we are honored to have the Paraguayan ambassador to the United States, Antonio dos Santos, with us. His name is Antonio dos Santos. Antonio, we’re eager to hear about your diplomatic mission in Washington and the economic potential of Paraguay that you’re here to discuss.

Antonio Dos Santos: Thank you for this wonderful opportunity to share about my country. As the Paraguayan ambassador to the United States, I’m based here in Washington, and I’m excited to talk about the economic potential of Paraguay and its appeal to foreign investors.

I received a law degree from Paraguay and a master’s degree from the American University in Washington. I have over 30 years of experience in diplomatic work. I’m a career diplomat for the Paraguayan Foreign Service. For some reason, most of my diplomatic career has been outside Paraguay in North America. I was Consul General in New York. I was also Consul General in Los Angeles and ambassador to the United Nations in New York. This is my fourth mission in the United States. Besides the US, I served at our embassy in Canada, and that’s it. So, for some reason, they keep sending me to the northern hemisphere of our continent. Other than that, I’m married, I have five children, and happy to be useful here for you.

LATAM FDI: Our discussion today is crucial in changing the perception of Paraguay’s economic potential. As the Paraguayan ambassador to the United States, I believe that our country offers significant opportunities for economic growth, opportunities that are often overlooked by many Americans. By engaging in this conversation, you, our audience, play a vital role in helping to shift this perception. Could you briefly give us an overview of Paraguay, highlighting its geographical and cultural attributes that might appeal to foreign investors?

Antonio Dos Santos: Of course, yes. If you look at the map of South America, you see that Paraguay is at the center of South America. We are a landlocked country. Paraguay is a relatively small country compared to Brazil and Argentina. We have a population of about seven million. But because we are part of Mercosur, a free trade agreement with Brazil, Argentina, and Uruguay, we have access to a market of almost 300 million people. So, whatever investors do in Paraguay, they can access a huge market, mainly Brazil and Argentina, along with Paraguay and Uruguay.

LATAM FDI: Pardon me for interrupting. How would you describe Paraguay’s economic landscape today

Antonio Dos Santos: Well, Paraguay is mainly involved in agribusiness.  As the Paraguayan ambassador to the United States, I would say if you compared it to a state, Paraguay would be almost like Kansas because most of its GSP is produced by agribusiness. But also, today, we’ve been able to diversify the Paraguayan economy a lot. 70% of our GDP is contributed by several activities, including services, financing, and transportation. Take a look at where Paraguay is located. We are in the middle of a highway. We call it the highway, the Parana and Paraguay Rivers. Our rivers are as big as the Mississippi and Missouri Rivers. Paraguay has been able to build the world’s third-largest fleet of river barges. After the United States and China, there is Paraguay. This is because we can transport all the production of this huge region through the Paraguay and Parana Rivers. That’s why all the transportation companies have been established in Paraguay instead of Brazil, Argentina, or Uruguay. Those countries have higher taxes and complicated taxation systems. Paraguay has the triple 10: 10% corporate tax, 10% personal income tax, and 10% VAT. As the Paraguayan ambassador to the United States, I can say that nobody can beat that in our region. It is a very simple economy and country to establish a company.

You can do it in days. We don’t have any restrictions for foreign exchange transfers outside or inside Paraguay through the banking system. Of course, we’ve been cleared by all the international money laundering controls. We have no problem with that. There is an excellent business climate in Paraguay. As we discussed before, we didn’t reach the investment grade. But Paraguay is very close to getting there, and we are confident we will get there very shortly.

LATAM FDI: To give people an idea of the size of the Paraguayan economy, we were talking about its size relative to other US state economies. Could you give people an idea of that in a general sense?

Antonio Dos Santos: Our GDP is about 44 billion in 2023. We’ve been growing consistently in the last year, 4.5% in 2023 and 2.9% in 2022.  Since 2014, we’ve been growing about three % every single year. So, this underscores the country’s resilience and economic potential. We did relatively well through the pandemic. Paraguay has been building its infrastructure during those years. We were building a road connecting the Atlantic and the Pacific Ocean, and we went riding and visiting through Paraguay. There are other big projects like a gas pipeline in the making. So, as the Paraguayan ambassador to Washington, I can say that it is a good opportunity for investment for any company. We are 100% clean, renewable energy through the big hydroelectric plants in Brazil and Argentina. Paraguay consumes only 10% of its clean, renewable energy; 90% of the energy we export to Brazil and Argentina. We still have a big margin for consuming our energy in Paraguay and a good opportunity for any company that wants to establish itself in Paraguay with clean, renewable energy.

LATAM FDI: You mentioned the importance of the agricultural sector to Paraguay’s economy. But one thing that I’ve been particularly interested in is the development of your manufacturing. Tell us a little about the maquiladora industry that is developing in Paraguay.

Antonio Dos Santos: Yes. As you mentioned, agribusiness is the best main source of foreign exchange in Paraguay. All the big American companies, Cargill and ADM, are established there. Minerva Foods is in Paraguay as well. We are in the top 10 in soy and top 10 in beef exports. However, there is also a new auto parts manufacturing company in Paraguay. The Korean companies are establishing themselves in Paraguay, as is the Japanese auto part industry. As you probably know, Brazil has a significant auto industry, and we’ve been able to complement that big industry with auto parts production in Paraguay. Auto parts, clothing, and fashion items are produced in Paraguay

LATAM FDI: Can you tell us a little about Paraguay’s workforce? What investors should know about the skill and education level there?

We have about 95% literacy in Paraguay. Our population is well-educated, and almost 70% of the country’s population is under 35 years old. As the Paraguayan ambassador to the United States, we have a young, vibrant population able to work, and we don’t have complicated labor regulations. As I mentioned, we have the triple 10: 10 % corporate tax, 10 % VAT, and 10 % personal income tax. So, it is probably the lowest tax burden in our region. If you compare it with other countries with very complicated tax systems, Paraguay is easy to do business. That’s why we’ve been able to attract many investments in Paraguay. I mentioned before that if you speak about transportation, Paraguay has the third largest river fleet in the world, just after the United States and China, because we have these large rivers, the Parana and Paraguay Rivers, that form what we call the highway. These rivers are huge, like the Mississippi and Missouri Rivers. We are transporting all the agricultural production of Mato Grosso, which is the south of Brazil, Bolivia, and parts of the state of São Paulo, as well as part of Argentina, through this river, through the seaports in the Atlantic.

We are also building the Interoceanic highway. It’s a road that links the Atlantic and the Pacific Ocean and goes right through Paraguay from Brazil to Chile. So that will save a lot of time for transportation.

LATAM FDI: You mentioned Paraguay’s triple 10 tax and other investor incentives. What other support does Paraguay, from the government’s view, offer to foreign investors? Are there training programs, for instance, or any other thing of that nature?

Antonio Dos Santos: As the Paraguayan ambassador to the United States, I can report that we have a lot of incentives for new industries established in Paraguay. Some taxes can be waived for several years. We have facilitation services for any company that will be established in Paraguay. We will also have a pipeline that will come from Argentina. They have a large gas resource, and Brazil consumes a lot of gas. We have investment guarantees and a legal framework to protect investment and ensure a stable business environment. Incentives for export-oriented production include programs like the maquiladora regime we mentioned before. Infrastructure development: There is also the investment in infrastructure projects to improve connectivity and support industrial growth. We mentioned access to renewable energy before. Paraguay has 100% renewable energy through the big dams we share with Brazil and Argentina, such as Itaipu and Yacyretá. Itaipu alone is one of the biggest hydroelectric projects in the world.

LATAM FDI: One of the things that is particularly surprising to me over the last several years of tracking some of Paraguay’s developments is that I often see it as the country noted as having the best business climate in South America. Beyond what we’ve already discussed, what other factors do you attribute that recognition to as the Paraguayan ambassador to the United States

Antonio Dos Santos: Paraguay has been consistently growing for the last 20 to 25 years. What investors are looking for is stability, as you know very well. We’ve been having elections regularly every five years. Predictability: I don’t want to make examples of other countries, but people know very clearly that some countries in a region are not very stable politically. We can also compare because, until the 1980s, Paraguay was governed by a dictatorship. Since the 1980s, we’ve been in democracy. As the Paraguayan ambassador to the United States, I can assert that democracy has been better for Paraguay than any other political system. In Paraguay, of course, there is political change that you have everywhere in the world. However, the important thing is that the democratic exercise is carried out every five years. We have a bipartisan political system. We have two big political parties. This is also insurance about stability because we’ve been observing in other countries that when there are many political parties, the countries are probably more difficult to govern. I’m not saying that a single political party should always win the election, but it’s always better if the population has the freedom to choose.

LATAM FDI: I agree. Given that the business climate has improved over the last few years, and you’ve been holding elections consistently, can you name some companies the listeners might have heard of that have succeeded in Paraguay?

Antonio Dos Santos: If we talk about American companies, I can say Cargill, ADM, Bunge, and Minerva Food. There is also a company called Millicom, which is a communications company. Teleconference has also been established in Paraguay. Paraguay is one of the countries that have more cell phones per person. I think there are more cell phones than the population in Paraguay. So, we are very well connected.

LATAM FDI: Looking to the future, what are Paraguay’s plans from a policy perspective for its diversification of the economy that you see as the Paraguayan ambassador to the United States?

Antonio Dos Santos: We’ve been trying to promote the forestry industry, the industries that produce paper, cartons, and all those byproducts. Because Paraguay is a flat country like Kansas. It’s almost 100% arable land. We have three harvests a year. We don’t have a harsh winter. We don’t have an earthquake or anything of a natural occurrence. Paraguay has already been deforesting the country for a long time. We still have about 40% of our forest, which is original. Our beef is almost 100% grass-fed from natural plains. That is a beef that is appreciated by a lot of people because it’s organic and without any chemicals.

LATAM FDI: Well, we’ve covered a lot of ground in a relatively short period of time. Hopefully, what the listeners have heard will generate questions that will hopefully get the word out even further about Paraguay and what it has to offer to investors. How do people contact you as the Paraguayan ambassador to the United States or your economic team with any questions they might have as potential investors?

Antonio Dos Santos: Well, we have a website and also, of course, all means of modern communications. We can give it to you. Do you want me to mention it right now? Well, yeah. We have social media, Instagram, Twitter, and all the communication channels you can imagine.

There is also something important that we discussed off the record before that people should know. Paraguay is the only ally of Taiwan in South America. I mentioned this because many people in the US are concerned about the influence of China in our region. Well, there is no influence of China in Paraguay whatsoever because we are not only a political ally of Taiwan but also a lot of trade and investment from Taiwan. We’ve been able to build a very strong alliance with Taiwan. We do it for a good reason. We’re convinced that Taiwan is a democracy. We also have a close alliance with Israel. Not many countries in the world are supporting Israel these days. Paraguay is one of the few countries that support Taiwan and Israel in all international forums, such as the United Nations. Paraguay is always supporting them because they are democracies.

LATAM FDI: Well, I’m sure many people in the United States will appreciate those sentiments. China will be a big challenge to all of the democracies shortly. The most we can do to be able to work together to promote democratic principles is probably the best situation for the world. One last question. It goes to contact information.  Could you email me your social media links so I can include them in the transcript section of the podcast page? If there’s somebody in your office that I could make their LinkedIn page link available so they can go directly to your staff to ask questions, I’d appreciate that. Would that be possible?

Antonio Dos Santos: I have a very easy name, Sebastian Ortiz, sitting right here. He’s in charge of all the embassy’s economic affairs.

LATAM FDI: We will include Sebastian’s link to his LinkedIn page if that’s okay with you. I want to thank you for joining me today. It’s been a great pleasure to meet and speak with you. We wish you and your country a lot of success in the future. We hope Americans become more aware of Paraguay and participate in its economy.

Antonio Dos Santos: Thank you for the opportunity to talk about Paraguay. We’re very honored. Thank you so much.

Luis Velasquez Quiroa
President
Consultoría Internacional
Guatemala City, Guatemala
luis.velasquez@consuinter.com

LATAM FDI: Today we have Luis Velasquez Quiroa with us. He’s the President of Consultoría Internacional, a firm located in Guatemala City. Today, we are going to discuss foreign investment in Guatemala. Hello, Luis. How are you doing today?

Luis Velasquez: I am doing excellent in Guatemala City, Central America. Thank you for this opportunity to speak with you and your thousands or millions of followers worldwide.

LATAM FDI: Well, that’s great. I hope you’re right about the millions. Let’s start by talking about your background. You have a very interesting resume. You can give the audience a taste of what you’ve done in your career.

Luis Velasquez: Well, I am a member of the fifth generation of a family that came to Guatemala in the 18th century. I have been in different business. My father and mother always told us how to create jobs, how to create opportunities, and how to attract foreign investment in Guatemala. That’s what we have been doing all our life. I am also teaching my grandchildren that the economy is vital worldwide, specifically for Guatemala, Central America, and Latin America. I have experience in agriculture and industrial services. I have been to many different countries around the world. I was also the Minister of the Economy of Guatemala. I was Secretary of State and a candidate for President of Guatemala. I have my TV program. It has existed for 16 years and produced 740 programs. I am also promoting different foreign investments in Guatemala and Latin America.

LATAM FDI: Thank you for providing us with that informational background. It’ll help contextualize some of the answers to the questions I’ll be asking you over the next 20 or 25 minutes. How does Guatemala’s geographic location impact its attractiveness for manufacturing investments, considering its proximity to key markets and transportation routes compared to other countries?

Luis Velasquez: Do you remember the experts say location, location, and location? We are here located in the center of the American continent. God has blessed us to be in this part of the American continent. We are strategically situated because we have the Pacific and Atlantic Oceans. We are a country that is close to the most significant market all over the world. I mean the NAFTA region. Also, the proximity to the United States is by ship, two days and a half from Guatemala to Miami for the Atlantic Ocean. We are only four and a half days from Guatemala to Los Angeles for the Pacific Ocean. If you go by plane, we will be in Miami in 2 hours and 20 minutes, 2 hours and 45 minutes in Houston, Texas, and Dallas if we can go to Panama in less than 2 hours. We are a very strategic location for attracting businesses. It doesn’t matter if they will be installed on the Pacific or the Atlantic coasts. I will give you an example. The Korean companies, the cluster in textiles and clothing, chose Guatemala. They generate over 100,000 direct jobs or over 5,000, I’m sorry, 500,000 indirect workers. They have invested millions and billions of dollars in Guatemala starting 30 years ago. They chose Guatemala as their operational hub to export to the United States, Central American countries, Canada, and Europe.

LATAM FDI: For companies interested in engaging in foreign investment in Guatemala, can you give us an idea of cost costs regarding industrial real estate prices and worker salaries and how those two things compare to neighboring countries?

Luis Velasquez: Yes. This is a critical issue because to be very competitive, you have to take care of the cost related to each product and industry. Here in Guatemala, a square meter costs $4, an excellent price. In other countries, it’s more expensive. To give you an idea, this is the real estate. I give you the actual cost. Worker salaries here are close to $450 per person per month. But most companies are coming here to pay the minimum wage and invest in Guatemala because we are excellent workers. You are living in the United States. You have seen many Guatemalan people and know we like to work. Companies engaged in foreign investment in Guatemala give incentives based on production. They are going to be more competitive here with Guatemala workers. In terms of electricity, we have a lot. Also, we produce our electricity. We are 100% very competitive. Also, we export electricity to Mexico, Honduras, El Salvador, Costa Rica, and sometimes until Panama.

The cost, if you are going to have a big company, you are going to pay seven or five or four cents per kilowatt per hour. It depends on how much you consume. You can sign a big contract for many years. For example, if you are going to have industrial production and need water, there is a lot of water everywhere. When considering foreign investment in Guatemala, you can be very competitive in all the costs necessary to produce your product or service. For example, in the services industry, we have significant, huge investments from TELUS, a company from Canada. They have facilities here with 8,000 people answering the phone, and they provide customer service. Transactel, for example, is from India and is another company that has chosen to make a foreign investment in Guatemala. We have investments from different countries; I am entirely sure that they are also considering the cost of moving to Guatemala.

LATAM FDI: Regarding Guatemala’s transportation infrastructure, What connectivity does the country offer to global markets, particularly concerning ports, airports, and road networks?

Luis Velasquez: We have excellent connectivity by plane. Every day here, we have flights from Guatemala to 10 different cities in the United States. Also, we have connections with Europe, Panama, Mexico, and South America. We have an excellent connection in terms of airports. We are also developing a network of regional airports in the different departments of Guatemala. Another airport will be for cargo in the Pacific Ocean, which will give more competitiveness to companies engaged in foreign investment in Guatemala. We have around 35 other airlines that are coming to Guatemala. Regarding business travel, Guatemala has the highest number of people in Central America and the Caribbean. Also, in terms of ports, we have ports in the Pacific and Atlantic Oceans. We are ready to expand those ports in the Pacific and the Atlantic Ocean to be more competitive, grow the economy, and be part of the global markets. There is a project to recover the railroads we have had since the 18th century from the south border of Mexico through Guatemala. Then, we are recovering rail service from Guatemala to El Salvador to Honduras, the Pacific Ocean, and the Atlantic Ocean.

Regarding the trucks on the roads, we are using an APP system, and we expect this new government to develop more roads because it’s essential for competitiveness and attracting more foreign investment in Guatemala.

LATAM FDI: What are the dynamics of the country’s labor market in Guatemala? Talk about unemployment rates, the presence and influence of labor unions, and the overall market conditions for manufacturing industries in Guatemala if you could.

Luis Velasquez: We have less than a 5% unemployment official rate, but we have close to 70%, 75% of the people that are in informal production, which means that they have their own business. The relationship with the labor unions is excellent. Guatemala respects all the rights of the workers. There is no problem. Also, companies and business people always try to take care of their teams. They have good policies to invest in the people, not only talking about money but also about training, career development, and a good work climate at the companies. We have excellent relationships with the labor people. With the unions, we are fine. Of course, we are not perfect. You know, some people are pushing sometimes. But talking about it in general, the companies don’t have big problems with the workers, and they don’t have big problems with the unions. The excellent issue for foreign investment in Guatemala is that the people here like to work a lot. Of course, they want money. They want to be better, but we don’t see any problem with the unions.

LATAM FDI: Well, how does Guatemala fare in terms of proximity to suppliers, especially concerning access to raw materials, components, and intermediate goods? Additionally, what is the quality of the suppliers found in the country?

Luis Velasquez: The suppliers in Guatemala understand that they are competing in the global market, so they have excellent quality. They are very committed to the contracts that they sign. Of course, the prices are a significant factor. The suppliers in Guatemala don’t think only of the Guatemalan market. They supply some goods to the United States and Latin American countries. We call these companies Multilatinas, which means that they are not only companies for Guatemala but are not only for Central America. They think they must compete, at least in the American continent. Also, we have excellent access to raw materials from the United States, Colombia, Brazil, and Chile, as well as from different countries. For every dollar we import all over the world, 38 cents we import from the United States, which means outstanding quality and reasonable prices. We import 16% from China, and almost 50% comes from Germany, Spain, France, South Korea, and Japan. In terms of the companies that are working here, they have an excellent relationship with the suppliers worldwide.

Honestly, I don’t remember having a problem because of the quality or because the suppliers needed to give the products at the right time. Even when we experienced the coronavirus, it was challenging worldwide. But thanks to God, we have a stable relationship with the suppliers, the local suppliers, and the international suppliers. The excellent issue is that all the companies, nationally and internationally, use the system of the banking system in Guatemala and all over the world. At present, we don’t have claims, we don’t have problems, we don’t have lawsuits. I cannot say everything is perfect, but the average situation with Guatemala’s suppliers and foreign investment is generally good.

LATAM FDI: Regarding political stability, what certainty can foreign investors expect? Are there any incentives the Guatemalan government offers to attract foreign direct investment?

Luis Velasquez: Okay. Guatemala has different systems for the free zones, which we call Zonas de Desarrollo Económico Especial Público Privada. These offer ten years of tax exemption for all the machines and all the equipment you bring to your factory. You do not have to pay any taxes for ten years if you are going to export everything. Can you imagine what that means? That’s an excellent incentive. If you sell to the Guatemala market, of course, you have to pay the sales tax, which is 12%. You will have to pay the income tax for the revenues, which could be 7% of the total gross that you are going to manufacture, or there is another option: you will pay only 25% of the net income. Knowing about those different regimes is essential when considering foreign investments in Guatemala. Also, we recommend that companies investing here in Guatemala take advantage of the CEDEP’s regime to have tax exemptions for ten years. But the most important is that they are going to use all the benefits that we have with the United States because we have the CAFTA-DR, Central American Free Trade Agreement, which means all Central American countries with the United States have a free trade agreement with Mexico also, with Colombia, Chile, Peru, Ecuador.

We are the only CAFTA member with a free trade agreement with Europe. That’s the great news. No other country has this excellent opportunity in Latin America. If you are making a foreign investment in Guatemala, you should have the vision to export to the American continent and Europe. It depends on the product you can export also to Japan or India. For example, one of the biggest companies worldwide that manufactures industrial gloves is based in Guatemala, the American continent. It’s a company with capital from Japan, and they chose Guatemala. They are inside one of the Zonas de Desarrollo Economico, Especial Publico Privada, and they are taking advantage of the fact that we are one of the biggest exporters of rubber and latex in the American continent. They use that as raw material and export it all over the world.

LATAM FDI: I know that you’re involved in a new development in one of the free zones, and it’s called Zona Franca Quetzal, or the Quetzal Free Zone. Can you tell us about that and what it offers to investors?

Luis Velasquez: Well, Free Zone Quetzal, or Zona Libre Quetzal, has an excellent location in the Pacific Ocean. We are only 5 kilometers from Puerto Quetzal in the Pacific Ocean, 5 km from the international airport for cargo, and 2 kilometers from the main highway. Also, the government is rescuing a railroad almost three kilometers from the free zone. Also, there is a lot of infrastructure for a new highway between the south of Mexico and El Salvador, located only 100 kilometers from Guatemala City. That gives us a great opportunity. It’s an excellent location to bring industrial and service company investors. The industrial zone is over 1 million square meters. That’s the first phase, and it can grow. The plans are to develop more Zonas de Desarrollo Economico-Especial, Público-Privado; you can call them free zones. We plan to develop in the Pacific Ocean, the Atlantic Ocean, and other sections of the country. This is still significant because we want to cooperate with people looking for the best job opportunities for foreign investment in Guatemala. There will not be more migration to the United States because we offer excellent facilities for companies investing in Guatemala.

We have been receiving calls from India, Taiwan, Korea, Japan, China, 12 or 11 different countries in the European Union, of course, the United States, Canada, Mexico, and other countries in South America. That is good news, and it is very well-located. We are very well-located, and we have the vision to develop Zona Libre Quetzal and to have, let’s say, 100 customers. We expect to create more than 50,000 jobs in that location only. Still, there are more free zones in Guatemala because companies are looking to our country, and we want to take the opportunity for relocation for nearshoring. We understand very well what this means for companies in the United States and Canada and what this means for companies in Asia that want to sell on the American continent.

LATAM FDI: We’ve covered some ground over the last few minutes. If somebody wants to contact you to ask a question related to foreign investment in Guatemala, can anybody who’s a listener with a question get in contact with you?

Luis Velasquez: Yes, Steve. I can give you my email address, which is luis.velasquez@consuinter.com. I will gladly answer all the questions, and we expect to still receive many questions. Thank you for your interview today.

LATAM FDI: Also, if you don’t mind, at the top of the transcript section of the podcast, would you allow us to put a link built into your name on your LinkedIn page? That way, it would be another direct conduit for people to communicate with you. Would that be okay?

Luis Velasquez: Yes, Steve. I appreciate all your help. Remember that we should work as a team. We love to work as a team, especially with you and many people from your company and, of course, more companies worldwide. Now, we should understand that we need each other and that for Guatemala, in this case, each new job means a new opportunity. The people need more opportunities.

LATAM FDI: That’s correct, and we can all agree. I wish you good luck, and thank you for participating. I look forward to communicating with you and hearing how your development at Zona Franca Quetzal is progressing.

Luis Velasquez: Thank you, Steve. We will keep in touch with you. Remember, anytime you are welcome to come to Guatemala to visit Zona Libre Quetzal, if you want to bring your clients and different companies worldwide, we will take care of you and your associates. We will be glad to give you a special tour. This is your country. The eternal spring of Guatemala is open to do business with you and your colleagues.

LATAM FDI: Thank you very much, and have a great day

Mauricio Claver-Carone
Manager and General Partner
LARA Fund
Miami, Florida
mauricio@larafund.com

LATAM FDI: Welcome to this episode of the LATAM FDI podcast. Today, we have Mauricio Claver-Carone with us. Mauricio has a very interesting background, but at present, he is the manager and general partner of the Latin American Real Assets Opportunities Fund called Lara Fund by its acronym. I want to welcome you, Mauricio. Since you’ve got a very interesting resume, perhaps you could tell us a little about your experience related to investment in Latin America.

Mauricio Claver-Carone: Well, thank you. First and foremost, thank you so much, Steve, for the invitation. Thank you for what you do. This podcast is great. The work you do regarding Latin American FDI is fantastic. I follow everything you put out, and I think it’s a great resource for all investors looking at investment in Latin America. Frankly, it should also be in my past life to the policymakers, looking at how to have good policies that help US investors in Latin America and the Caribbean, which should be a priority, hopefully, for all investors here. Unfortunately, we’re going to go a little bit into that. Look, I’ve had a colorful career. I began my life as an attorney. By training, I began my career in the Treasury at the OCC, controlling the currency, securitizing, and banking law. There, I did Basel II, et cetera. In various situations,  I went to Treasury to be a senior advisor in 2016 with Secretary Mnuchin and Undersecretary Malpass, who became President of the World Bank. From there on, I had the privilege of serving as the US Representative at the International Monetary Fund, where I had a full plate.

In the time I was there (I was there for eight months), and that’s where the big Argentina program came in 2018, so that kept my hands full. But we also were able to do many great things with Ecuador at the time,  as well as with Barbados and Suriname. So that was a great opportunity there. Until I was called by President Trump to serve as a senior director for the Western Hemisphere. So basically, the President’s Senior Advisor for the Western Hemisphere at the National Security Council in the White House. That was a great privilege, which I got to do for two years, from 2018 to the end of the Trump administration in 2020, when I was elected as the first American President of the Inter-American Development Bank, where I served for two years until 2022. Now, I’m in the private sector and focusing a lot of the experiences we learned on what worked or what didn’t work regarding investment in Latin America and the Caribbean and what we preached regarding the private sector investment. I always prided myself on being someone who practices what they preach and walks to walk, not just talks to talk.

Now I’m a private equity investor, and we’ve created this Latin America Real Assets Opportunities Fund, which we know as the LARA Fund, in partnership with Hudson Sustainable Group, which was the pioneer of sustainable investment created back in 2007 by a former partner of Goldman Sachs, Neil Arbach. We’ve been off to the races. It’s been a fascinating experience seeing the opportunities that abound in investment in Latin America and the Caribbean, particularly the undercapitalized countries that pose less risk and are often overlooked, which are some of the smaller countries in the region. But I know we’ll get into that.

LATAM FDI: Yes, we’ll get into that. Today, we will discuss foreign direct investment in large countries in Latin America versus small countries. With that in mind, Mauricio, can you first tell us how the market scale influences the decision-making process for foreign direct investment in large versus small countries in Latin America?

Mauricio Claver-Carone Yes. Look, that’s been the conventional wisdom of the past, and I think that’s been a big obstacle. People have always said, Oh, the market scale is not there in the smaller countries. I frankly disagree with that. I think that’s an old way of looking at things. As a policymaker, I always used to say small countries represent big opportunities for investment in Latin America. Unfortunately, policymakers have always, regarding the Western hemisphere, overly focused on Mexico, Brazil, and Argentina. It’s almost like you focus on those three; everything else comes after. I think that’s been a mistake. I think if you look at it per se, all three of those countries are G20 countries. There are geopolitical realities. Sure, we understand all of those. But at the end of the day, as investors, particularly nowadays, we’ve overlooked and missed the biggest opportunities and, frankly, as US investors, the most pro-American countries in the region. Today, the top five growing countries in Latin America and the Caribbean are smaller countries. The highest growth economy in the world today is Guyana, based on its energy findings and the evolution of that industry there.

But followed by that, you have Panama, Costa Rica, Paraguay, and the Dominican Republic, all of which are small countries doing all the right things from the perspective of investment in Latin America to attract these investors. Now, going to your question regarding the market. Before, the excuse was like, well, you had to be in Mexico, Brazil, and Argentina, though that’s complicated by currency issues, etc. But at the end of the day, you had to be in those three countries because they’re the only ones with big enough markets. And that’s very narrow, closed-minded thinking, frankly, to save unless you were looking to sell as a distributor of some consumer good. But what do we do at LARA? We are involved in investment in Latin America. We invest in energy and infrastructure. You can see how these things have translated and have transformed over the years. The biggest infrastructure finance gap in the entire world is in Latin America and the Caribbean. At the end of the day, it doesn’t matter about the size of the market or the scale of a country. Let’s say, for example, when we invest in a renewable project, this whole fund came about initially with a big solar investment in Uruguay, which we can talk about later.

However, a 10100-megawatt solar facility in Uruguay is the same as a 10100-megawatt solar facility in Brazil. It’s a 100-megawatt facility. At the end of the day, even though the Brazilian market is so much bigger than Uruguay’s, at the end of the day, when it comes to infrastructure and energy, the market doesn’t matter. It’s the opportunity and the ability to bring a project to fruition. That’s where the big opportunity for investment in Latin America lies and where the risk factors play favorably. The reality is, and we’ve done this in our fund, the relative risk analysis of the smaller countries, including those five fastest-growing economies in the region that I just mentioned. But in addition to a lot of other smaller ones, including Uruguay, Ecuador, El Salvador, the Bahamas, Barbados, et cetera, these are countries where at the end of every day, the opportunity to come in, the investment opportunities, per se, tend to be often overlooked and tend to be a lot easier. Frankly, the biggest challenge has always been, from an investor perspective, the scale of those projects. A lot of the big investment funds, for example, haven’t been in these countries because the ticket sizes haven’t been big enough.

That’s been the problem. Now, that’s something that we’ve tailored ourselves to be first movers here in these countries for investment in Latin America because our ticket sizes are 50 to 100 million. So, they favor those countries, particularly if you’re a big fund only looking for billion-dollar tickets, then these countries may be smaller. But it doesn’t change. The market size doesn’t change the opportunity any which way, shape, or frankly, that’s been an excuse. And it’s been an excuse also that’s done a lot of damage to a lot of the countries in the region, if I may, because in the way that in the past, we looked at trade agreements, it’s bunched these countries up. For me, the biggest example is always the CAFTA-DR. At the end of the day, look at CAFTA-DR and lose its pigeon-held these countries in through literally and have ignored their comparative advantages. The funny part is that for all the talk of the CAFTA-DR in regards to manufacturing and apparel and all this stuff back in the day, the reality is CAFTA didn’t stop US apparel makers, global apparel makers, etc., from literally taking off to China and Vietnam. On the contrary, the limitations of CAFTA and pigeonholing these countries as a big group rather than looking at the individual comparative advantage of Guatemala, El Salvador, Honduras, Costa Rica, Dominican Republic, has actually held these countries back from investment in Latin America and has really withheld the opportunity to find the best opportunities for each individually tailored country instead of bunching them up.

Why? Because it goes back to your question. Because the myth was you had to create a bigger market. Because it had to be a bigger market because if not, they didn’t matter because they weren’t Mexico. I think that’s a huge mistake, one that I think hopefully policymakers will try to fix. In my policy-making days, we had created an initiative called America Crece, Growth in the Americas. The whole notion of the program was to create energy and infrastructure frameworks with countries in the region. By the end of the previous administration, we actually had half of the countries in the region involved. So, 16 countries in the region had signed on to these investment frameworks, and we were actually creating a pipeline of actual deals where they were most successful in Panama and Ecuador, and we can go into that. But the whole point was that that’s where the big opportunities were. They were just glaring at us in the face. But we were always so focused on Mexico, Brazil, and Argentina. And in the case of Mexico and Brazil, these are countries that, frankly, should have developed their upper middle-income status and should have developed deeper markets.

They’re G20 countries. There are plenty of investors there. There are great opportunities there. They don’t need us to have that ultimate focus. And by the way, just one last thing that people overlook with smaller countries, if you ask any big investor, and I’ve literally been all over the world, and I’ve talked to institutional investors everywhere. When you ask them, what are they doing regarding investment in Latin America and the Caribbean? They say, Mexico, Brazil. And then That’s it. And then you say, Okay, well, and then what are you doing now? Like, well, Mexico and Brazil, but we’ve lost money. They always had some deal that went really bad. So, they’re not even that bullish about it. And you say, Well, what happened? It’s always a currency issue. So, there’s been a currency issue. The other thing that’s overlooked where we focus on the LARA Fund is that the countries that we seek that are part of our thesis are also countries that pose very little to no currency risk at all. They’re dollarized countries like El Salvador, Ecuador, and Panama. There are pegged countries like Bthe Bahamas, Bermuda, and Band Elize that are pegged. And they’re countries that have very stable currencies and that the deals are in dollars, whether it’s Costa Rica, Uruguay, etc. Or that are based on energy and energy development like Guyana, Suriname, etc. It’s really about not being lazy. It’s about digging a little deeper and not finding excuses. I’m sorry for the long answer to your question. The bottom line is that whole market thinking has been an excuse. It’s been lazy thinking by policymakers and investors who were looking for the easy way to get either a political win by bunching a bunch of small countries up together or by literally just trying to get a big ticket on one and not really digging a little deeper to mark further investment in Latin America.

LATAM FDI: It’s a good idea to turn over a few stones to find opportunities that exist. Correct?

Mauricio Claver-Carone: You got to do the work. You got to pull up the sleeves, and you got to do the work, and you got to find them. But like I said, it’s unfortunate that the entire investing world has become a little bit lazy. You have hundreds of billions of dollars in capital that are being popped up to these big, huge institutions that are now sitting on tens of billions of dollars. They’re complaining that there are not enough deals because they need more deals. But the thing is that they only want to write. They’re sitting on so much capital that they only want to write multibillion-dollar tickets because they want to just get out that money fast enough. You literally need to roll up your sleeves and and those opportunities. In these small countries, which, Hey, look, that’s what we’re here for, Lara Fund. We’ll do the work for them. We’re looking to find those opportunistic deals for investment in Latin America that have smaller ticket sizes. But at the end of the day, they’re very good energy infrastructure deals that consider market size e,t cetera. Like I said, 100 megawatts in small countries is the same as 100 megawatts in a big country.

LATAM FDI: Exactly. Well, what are the regulatory differences between large and small countries in Latin America regarding FDI? And how do they impact the investment strategies that you implement?

Mauricio Claver-Carone: That’s another point in favor of investment in Latin America in smaller countries. If you look at the regulatory environment in a lot of the smaller countries, they are some of the most open to having the greatest fiscal investment policies and regulations, definitely compared to a lot of the bigger countries in that sense. I think of, for example, a country nobody thinks about, unfortunately, Paraguay. You would be hard-pressed to find a single country anywhere in the world with a better fiscal and regulatory framework for foreign direct investment than Paraguay. Yet people aren’t as focused on it, except obviously, if you’re in that area. The funny story is not funny because it’s tragic, but good for Paraguay. But the story you’ve seen over the last decade has been about genuine businesspeople and investors, taking their products and setting up shop in Uruguay and investing those earnings and revenue into Paraguay. And then you get to Asunción today and it looks like a skyline of Miami because literally it’s like a whole Argentine money building out the real estate there, et cetera. It’s a wonderful place to invest with wonderful regulatory and fiscal incentives and things of the sort, but people don’t think about it when they think of investment in Latin America.

You have got to dig a little deeper. Frankly, look, when you think always about Panama, Costa Rica, the Dominican Republic, et cetera, the conversation has so long been focused on these free zones and free trade zones, et cetera. At the end of the day, for me, it’s just like, these countries, at the end of the day, need to stop thinking about designated zones and making their entire country free trade zones. At the end of the day, that’s the easy path. A free zone or a concession in that sense is great, but at the end of the day, fruit functions within that sphere. Now, are they perfect? No. Are there challenges? Yes, 100%. But compared to the big countries, compared to Mexico, compared to Brazil, no. It’s like at the end of the day, it’s actually a lot easier to do business in these small countries. It’s a lot clearer, and sometimes the incentives are a lot bigger. By the way, in differentiating big and small countries, I didn’t mention the middle tier; I consider them smaller. Colombia, Peru, and Chile, that’s the middle of the road. They’re not big and they’re not small. They’re medium-sized countries in terms of investment in Latin America.

I think they’re a little bit different. I think they’re as well, and that’s why in LARA Fund, we’re also focused on those three countries. There are great opportunities. Those countries have a bit higher risk levels than the smaller countries that don’t have currency risk or have very little institutional risk. I think the risk level there is a little bit higher on the currency side, but the timing right now is really good. In those countries, you see a ton of, for whatever reason, because of the political cycles, because of other events, et cetera, you see a ton of assets that are in dire need of capital, I dare to say, distressed, all the worst you’ve got throughout the region. And great opportunities to come in. The currencies have been fairly stable, whatever has bottomed out, et cetera. When you look at a country like Colombia, yes, sure, the national government is complicated, is complex, to put it diplomatically. But business in Colombia is done very much at the city and regional level. At the end of the day, when you look at those governors and those mayors in the business pockets in Colombia, they’re all very business-friendly, et cetera.

In Chile, you’re seeing that transition as well as it relates to investment in Latin America. At the end of the day, Chile is a very strong institutional country with a very strong business community. It went through discovering itself politically, again, to put it diplomatically. But you’re seeing, again, that transition away, and what you’re going to see is a very strong pro-business wave that’s going to come into that country, also presenting good opportunities. Peru is a fascinating country. It’s just like an enigma, right? Even though it’s very difficult to remain a sitting president in Peru, it’s just very challenging, and it’s gone through all of that. The business community has, obviously, because of good leadership at the Central Bank, the currency has been very stable. The opportunities in its placing in the logistic chains are very strong, and it’s remained just a great place to be able to invest and to do business, which goes, by the way, into your previous question as well in regard to logistics. A lot of this has changed because of also regarding thinking about market size, et cetera, because nowadays the logistics chains are so complicated in that sense. People also have to think about, okay, what are the countries with the best infrastructure for logistics, regardless of their market size.

I don’t hear today ironically, I don’t hear investors today talk about Mexico as, Hey, Mexico, the federal government, it’s not easy. They don’t seem to be great with foreign investors seeking to make an investment in Latin America, but we’re still investing there because the infrastructure is developed, thanks to NAFTA, now USMCA, and the infrastructure exists there. So now, the excuse is not market size. The excuse is, Okay, yes, we like Costa Rica, but does it have the infrastructure to supply our logistics needs or our logistics, transportation, supply chains, et cetera? That’s the question now. Now we’ve gone from, do the markets, ?sIshere a market size, toando they have the infrastructure necessary to develop? Unfortunately, not, because they’ve gotten for so long, for decades now, pigeonholed into these thread lines and into thinking about… And it’s this whole notion of integration. Integration is fascinating to me because it’s become the political talk for decades. The region has to integrate, yet it’s the least integrated region globally. The different trade agreements between the different countries make them lose billions of dollars a year because they’re super complicated, et cetera. I always tell leaders of these countries to focus on your country and where it is positioned concerning investment in Latin America.

Costa Rica will be great and can be great, not because it has a free trade agreement with five other countries in the region, but because your domestic fiscal, and regulatory policies are attractive, are the best, and are where the opportunity lies. That’s what investors look at. Investors don’t care that Costa Rica has a free trade agreement with Peru, Chile, or El Salvador. They don’t care. What they care about is what our domestic framework looks like. Forget the integration talk and focus on what your country looks like, your comparative advantages, and how you can stand apart from the bunch in that sense to attract investment in Latin America.

LATAM FDI: Looking at a softer variable, I guess, would be one way to put it. How do cultural and linguistic factors play a role in approaches that you make in investing in large and small countries in Latin America?

Mauricio Claver-Carone: For the LARA Fund, the region in itself has a cultural and linguistic comparative advantage for US investors. At the end of the day, because of proximity, because we all live in the same neighborhood,  and because we have Hispanic populations. I am of Hispanic descent. Because we have the cultural links, et cetera. So, it should be a friendlier place. And by the way, tourism is fascinating. At the end of the day, and particularly post-COVID, this is going to be a great area of continued growth in the region. People want to go closer to their homes. They don’t want to go as far away as they used to in many regards. These are great opportunities. So, they know these countries, et cetera. I think that in that regard, it plays an advantage. I think the challenge is thinking that these are all, and this again goes to the laziness of policymakers and, frankly, investors in the past, thinking that these countries are all the same. They’re like, Oh, yeah, yeah, yeah. Hey, we’re investing in Costa Rica. We’re doing this, or in the Dominican Republic, we’re doing this. They’re like, Oh, yeah, I’ve been to Mexico, so I know what that’s like.

No. At the end of the day, What has to be appreciated, when I was in government, I banned the use of the term Northern Triangle. I said, No one in any document, anywhere, uses the term Northern Triangle in any which way, shape, or form. What it ignores is that even in that case, El Salvador, Honduras, and Guatemala, those three countries are so different. The people are different, they look different, they eat different food, they speak with different accents. Their economies are different. Their governments are so different. What we continue to miss when we bunch these countries up is we continue to miss the particular opportunities in those countries. I’m repetitive now, but the comparative advantages that exist in those countries are important. While there’s generally a comparative advantage for us, and obviously because this is part of our neighborhood, and now, particularly post-COVID, it’s just a great opportunity. Look, here’s what’s so frustrating to me. When COVID took place, there was a unique opportunity, and we really, really banked upon it. I took this on later when I was president of the bank. We were banking on this whole notion of nearshoring and reshoring. Reshoring was real, and it is real.

It is real. Has it met its potential? No. No statistic frustrates me more than when you look at the countries that have benefited the most. If I ask you what the three countries have benefited the most from the decoupling that has taken place between US companies and China if you look at the top five countries, none of them are Latin American or Caribbean. It’s been India, Thailand, Vietnam, and Korea, all in Southeast Asia. That’s extraordinarily frustrating because the natural notion should be reshoring and nearshoring. We bring back the industry here to the US and to the region, and there you have mutual growth through investment in Latin America. For me, the concept of mutual growth is just so common sense-wise in that regard. It makes a lot of sense to us… It’s where we should be focused. But we went into then, unfortunately, the current administration there’s this whole notion of global friendshoring. And so, all of a sudden, Asia is the biggest beneficiary. When the natural affinity, like these countries, we talk about our understanding of these countries, but these countries also understand us.

The big talk is about of Chinese investment in the region and how they’re all over the place involved in investment in Latin America. I don’t know a single country, and definitely not of the smaller countries, where if you sit a Chinese investor and a US investor next to each other they say, hey, I want the Chinese investor. They want a US investor. They want this because that’s what they feel the most comfortable with. They’ve been educated in the US. They have links to the US. It’s our natural trading partners, our natural investment partners, et cetera. But it’s literally about showing up. It’s about finding the opportunities. From the country’s perspective, it’s about facilitating the opportunities by creating an environment that they can then take advantage of and not fall into the same political jargon or excuses we’re not big enough. And then you get these complexes, these are these silly complexes, oh, we’re not big enough. Oh, we can’t compete with Asia. Or we’re not, whatever. No, let’s roll up our sleeves. Find one deal at a time to promote investment in Latin America. One deal at a time, we can make this happen. We can find these opportunities. That’s what we’re now set up for in the LARA Fund.

That’s what we do. We’re finding these opportunities one at a time, and it’s amazing how much is out there and what can be accomplished.

LATAM FDI: Well, talking about going through the whole process of assessing investments of the type you seek out in Latin America, what are the profile risks associated when examining small versus large countries? How do you navigate those differences?

Mauricio Claver-Carone: That’s a great question. Look, there are three types of risk, generally speaking. There’s political risk, there’s currency risk, and there’s operational risk. From the political risk perspective, our risk analysis that we’ve done, our proprietary risk analysis of LARA Fund, we’ll show it to our investors. We believe the smaller countries provide less risk. They have strong institutions, have great opportunities, and, from a political risk perspective, have an advantage over the larger countries. From a currency risk perspective, we have already talked about this. If you look at what we call the LARA 12, which are our tier countries, a lot of the deals are in dollars, so there’s no currency risk per se. At the end of the day, these are countries that are either dollarized, pegged, et cetera, or energy deals that are dollar-based, et cetera, which minimizes that completely. At the end of the day, ultimately, in what is political risk and currency risk, and I told you what institutional investors think about, they’re interested in Mexico and Brazil because of the big tickets, but they’ve lost money at some point over the last 20 years because of currency risk. That puts political risk and currency risk in the win column for the smaller countries versus the bigger countries when considering where to site investment in Latin America.

The third part is operational risk. That’s where at the end of the day, it’s really about to sponsor the operator, and then that’s where investors like us come in. Our job for investors is to ensure and de-risk and to make sure that the operational side goes as smoothly as possible. That’s where our asset management side makes an important difference. My partnership with LARA’s partners, Hudson Sustainable Group, was all born off of the biggest solar portfolio in Uruguay. It was one of those interesting deals whereby there was a lender. It was a Chinese borrower, ironically, that defaulted because, lesson learned in the private sector, the Chinese do default, and they do it a lot because they like to distress assets in the region. There was a Chinese borrower who defaulted. There was a multilateral that had this huge long-term loan on there that we needed to get out of the way because, yes, the Chinese default, but yes, the multilateral distress because they have these big, huge long-term loans with a ton of contingencies, and so they’re not conducive to having projects operate well and go through to fruition.

Got all those out. Here comes this US investor, Hudson, who came to this project two and a half years ago, suddenly with good asset management. Basically, the project that I saw was producing 40% more energy. Some things were no-brainers. How about I put a security fence around it so people can’t cut the copper? But also just efficient management. With efficient management, it was producing 30 or 40% more energy. In two and a half years, it was sold to a Canadian fund with almost a 24% net IRR. Wow. Imagine that. By the way, when people talk about exits in the private equity world, et cetera, today, there are people, investor funds are looking for functioning assets that work, and they’ll come in, and they’ll buy them There’s no doubt about that. So, that opportunity exists. Really, where the operational risk, where funds like ours come in as LARA, is that we make sure and wde-riskon the operational side. That’s our job. Now, here’s something interesting that I’ve learned. It’s funny how you go from a treasury banking lawyer to a policymaker to an international financial institution head, and then as a private equity investor, there is. It helps explain a lot of the challenges we had before, whether it’s in the multilateral space or the government, there’s not well-developed private equity culture in Latin America and the Caribbean.

It’s mostly a debt culture, with the exception somewhat of Brazil and Mexico to a degree, where private equity funds are in that space to make assets, et cetera, more efficient. But in the smaller countries where there is investment in Latin America, in the medium countries in particular, there’s really not a private equity culture. I think that’s a great opportunity because our goal and coming in as partners, we’re looking to be in these projects to help make them more efficient, to help them create value, to add value, to create value, to grow, and then welcome in other investors in that regard. It’s like a value chain multiple that’s created there. It’s a great opportunity. It’s been, I think, a challenge in the past, but it’s a great opportunity. But it’s also a lot of education. We’ve realized there’s been an educational perspective of explaining to people why It doesn’t take a lot of effort because they get the notion of like, Wow, it’s great to have a US investor here that is going to help get this asset running and make it work and make it work more efficiently with their resources and with their strategic partnerships and with their know-how, et cetera.

It’s a win-win for everyone. It’s a win for the domestic operators. It’s a win for the US investors. It’s a win for everyone. It’s what a true partnership looks like.

LATAM FDI: One thing that we’re pleased with at LATIM FDI is that our listenership seems to be growing steadily. And because that is the situation, we like to ask people we interview if they would be willing to take questions from listeners. And if they are willing to take questions, how would the listeners contact someone like yourself with your expertise to be able to ask what they have on their minds?

Yeah, I would love that. I welcome that. I’m on LinkedIn. Mauricio Claver-Carone. I’m easy to find. Whether through you and your side or mine, I am happy to connect and happy to answer questions and explore opportunities.

LATAM FDI: Okay. Then, we’ll do what we do with all of our other interviewees at the top of the section on the page where the transcript begins. We’ll have your name and your LinkedIn link attached to that. We’ll have the name of the Lara Fund. We’ll have your website, and we’ll include your email so that anybody who has any questions or has any potential leads for you in terms of good investment opportunities will be able to get in contact with you.

Mauricio Claver-Carone: I look forward to it.

LATAM FDI: Well, thanks a lot for speaking with me today. It was very interesting, and good luck.

Mauricio Claver-Carone: Thank you, Steven. Thank you for all your work.