Factors Global Investors Have To Face In Latin America – Some Highlights

Article by HÈctor Ferreira*

I) Introduction

Latin America has been, since the origin of the countries which constitute it nowadays, a place open to foreign people and foreign investments.

Historically, immigrants brought to this region, not only their work and the dream of a new life in these territories, but also knowledge, techniques and commercial ideas that contributed to its development. The families of these foreign people are currently an important part of the inhabitants of our countries.

The territories of Latin America with its natural resources, minerals, flora, fauna, and so forth, were at the beginning, the main attractiveness to this region and the way to persuade foreign investors to invest here.

However, these elements are not enough to captivate modern investors, who need a perfect combination of factors to feel comfortable in a region, nowadays, and essentially: political and economic stability; transparency and legal security and absence of corruption.

Nobody invests in a country which is politically and economically unstable, which is insecure because of social turmoil even if the country has abundant natural resources.

The time in which only the natural resources were enough to "seduce" investors belongs to the past. One of the most important challenges Latin American Governments have today is to provide its people with employment as a way to stimulate and achieve social and economic development.

In order to reach these goals, it is absolutely necessary to furnish the investors with conditions to obtain and increase the profits of their companies in a suitable environment.

On the other hand, a lot of Latin American countries, with similar conditions in terms of land, weather, temperature, etc. currently compete for the same investors in the same markets.

In fact, Professor Julio C. Porteiro stated that in a market it is not only important the national offer but also the international one. Hence, knowledge about the regional market, in which an investment is made, is an important prerequisite for the success of the project.

Investments are, currently, the most important source of development that Latin American countries have. Not only small economies like Uruguay need investments to survive but also autarchic economies like the Brazilian, expect to receive investments to be, among others, more efficient.

In order to obtain the goals already mentioned it is essential to take into account three key groups of factors.

Before investing, global investors consider some key legal, institutional and regulatory factors, for example, promotion of investments, the kind of government regime, the political system, legal security, and so forth.

This paper will analyze how these different factors influence investments in different Latin American countries and the region as a whole. These are the top issues lawyers should consider to facilitate global investments in the region.

II) Legal Factors

The legislation of a country where an investor plans to operate is of utmost importance; therefore, the prospective investor should carry out a thorough pre - investment study to get to know: available tax benefits, Competition rules, Consumers' rights, differences in treatment between national and foreign investors if any, and so forth.

A country and a region that expect to receive investments from foreign countries have to strongly defend their independence in the elaboration of the Law while complying with the principles of law regulated by international rules.

It is important for a country to have a democratic and egalitarian system with clear rules, since an erratic legislative system, where in a short term important topics have different solutions, is not convenient.

Another key legal factor is the strong promotion of investment in specific strategic areas, in which a country has particular advantages (e.g. natural resources).

For instance, Uruguay in the 90's, promoted the Forestry Industry very strongly, granting tax benefits and exonerations to companies which were interested in this...