Economic Opportunities

Much of Latin America and the Caribbean but particularly South America relies on resource based economies, notably mining and oil and gas. Western Canada's resource extraction development expertise and experience relates directly to the developmental challenges LAC is now facing. Furthermore, Western Canadians are familiar with mining in mountainous terrains and Canadian expertise has and will continue to assist resource extraction in the mountainous Andean region.

Western Canada's advanced technology accomplishments match up well to Latin America's interest in attracting investment in high technology areas. Indeed, many of the innovation clusters WD supports can find parallel interests in the study area. Little has been done to date, however, to explore these potential opportunities.

Opportunities by LAC Region

This section reviews economic opportunities by major LAC market area (Andean Region, Southern Cone, Central America, and Caribbean). Brazil is addressed in section VI.b. These regional reviews draw heavily on consultations with DFAIT and relevant planning material. ³⁶

Andean Community Countries
(Bolivia, Peru, Colombia, Venezuela, Ecuador)
The region is rich in oil, natural gas, and minerals, making it an important market for Canadian companies active in extractive industries. The countries in this sub-region (especially Venezuela and Colombia) have large economies offering many opportunities in a variety of sectors. The complementarities with Canada that characterize the economies in the region also offer opportunities to develop strategies and alliances to capitalize on new FTAs, such as the recently concluded agreement with Peru and Colombia, for better regional penetration. The presence of extractive industries also generates demand for Canadian suppliers in the Information and Communication Technologies (ICT) and environmental sectors, as well as for technology transfer. Particularly in the extractive industries, CSR remains an important aspect of the region's business climate. There is room for significant growth in non-traditional areas, including wireless, geomatics, and security technologies. ³⁷

Southern Cone
(Chile, Argentina, Uruguay, Paraguay)
The Southern Cone countries enjoy the highest standards of living within the LAC region and therefore often generate commercial opportunities that are somewhat different from the rest of South America. Nuclear and thermal energy, higher-tech ICT, and agricultural technologies are among the goods and services that Canada could increasingly export to this region. Furthermore, geographic characteristics in Argentina and Chile such as harsh climates and huge geographic distances are similar to those in Canada, suggesting that Canadian technologies, such as communications, remote sensing, and cold weather technologies, may be very exportable to these countries.

Central America
(Belize, Guatemala, Panama, Costa Rica, Honduras, El Salvador, Nicaragua)
Central American countries offer significant opportunities in the tourism industry and in infrastructure projects. These two sectors generate demand in the building products, construction, and environmental industries sectors. Mining and hydro power are also important sectors of opportunity. DFAIT notes the significance of the upcoming Panama Canal expansion, which will reconfigure logistical flows and create new opportunities.

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Caribbean
(Bahamas, Cuba, Dominican Republic, Haiti, St Kitts and Nevis, Suriname, St Maarten, Caymen Islands, Grenada, Jamaica, St. Lucia, Dominica, Trinidad & Tobago, Barbados, Guyana, St Vincent & the Grenadines, Turks & Caicos)
The tourism industry and infrastructure projects are priority sectors for Canada in many countries in the Caribbean. International Financial Institutions (IFIs) play an increasingly important role in generating greater business opportunities in the countries of the Caribbean Community. Many of the islands (such as Cuba, Trinidad and Tobago) are also rich in crude oil and natural gas, making them especially important for Canada's oil and gas industry. Canada has an important relationship with Cuba and has consistently recognized Cuba's strong commitment to economic and social rights, with its particularly important achievements in the areas of education and health. At the same time, Canada has urged Cuban authorities to achieve similar progress with respect to basic civil and political rights, such as freedom of speech, association, and the press. ³⁸

Opportunities by Selected LAC Country

This section focuses on economic opportunities in seven LAC countries, selected on the basis of their importance as current and potential markets for Western Canada and WD interest. These countries are Brazil, Venezuela, Colombia, Chile, Peru, Argentina, and Cuba. In order to provide WD with new information, these country summaries are based primarily on material from sources other than DFAIT including the consultations undertaken for this study.³⁹ Brazil is examined from both a regional (current DFAIT planning material) and country (primarily other sources) perspective. Inevitably there are similarities in the information material for Brazil from both the DFAIT and non-DFAIT sources. Additional information on these seven countries and others is provided in Appendix C. The country-by-country market opportunities overview presented here is illustrative and touches on only a limited number of sectors.

Brazil
The first LAC country for which DFAIT has prepared a full market plan⁴⁰ is Brazil. Here are some excerpts:

• Brazil provides opportunities for Canada because of its sheer size and sophisticated economy, its status as a rapidly expanding economy, and its substantial import market.
• Brazil, a rapidly developing and stable economy, is an economic powerhouse by most measures.
• Brazil's highly diversified and industrialized economy is the largest in Latin America. It has extensive natural resources and is a world leader in agro-industry.
• Brazil has a huge population with a young, highly educated middle class (estimated 45 million), and an innovative and entrepreneurial private sector. Brazil is steadily improving both its macroeconomic and microeconomic landscape and is now focused on stimulating domestic growth and improving its overall business climate.

DFAIT identifies the following priority sectors selected on the basis of Canadian capability, substantial growth potential, demonstrated Canadian interest, and the ability of the Trade Commissioner Service to assist and influence business development in these sectors.

• Information and communications technologies
• Environmental industries
• Oil and gas equipment and services
• Electric power equipment and services
• Arts and cultural industries

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Other information sources emphasize Brazil's role as a supplier of raw materials. A large share of the world's beef, orange juice, soybeans, and iron ore comes from Brazil. Brazil has a broad and sophisticated industrial base and the government continues its program of privatization and deregulation. Under reforming democratic governments, Brazil has conquered inflation, opened a protected economy to the world, and begun to tackle its social problems such as poverty and inequality.

Brazil is also experiencing a growing middle class with increased spending power and a demand for high quality merchandise The British trade service observes that if a product or service is generally competitive in world markets it is also likely to be so in Brazil. EDC sees solid prospects across a wide range of sectors, with strong growth opportunities in oil and gas services, mining equipment and services, telecommunications, automotive, power, and environmental applications.

Petrobras, Brazil's partly state-owned oil and Gas Company, has announced a major oil discovery, the Tupi field, which it hopes will produce between 5 billion and 8 billion barrels. The head of Brazil's National Petroleum Agency observed that another nearby discovery might hold as much as 33 billion barrels, which would make it the third-largest field ever found. It is estimated that investments in equipment for the oil sector will represent US$8-$10 billion per year in the next five years. Oil extraction material and equipment opportunities for Western Canadian companies may include:

• Drilling equipment, components and tools
• Components for seismic vessels, production platforms, refineries, corrosion control, and refrigeration
• Pumps and pipeline products
• Drilling, exploration, airborne seismic surveys, catering, engineering and environmental services
• Software for drilling, exploration, oil platform management, and geophysics

Eighteen Canadian pipeline products and services companies attended the Rio Pipeline Exhibition 2007, the largest Canadian participation on record. Seven of these Canadian companies were new to the Brazilian market. This was the largest foreign delegation to ever attend Rio Pipeline.⁴¹

The Brazilian IT market is by far the largest in Latin America and is projected to grow at a compound annual growth rate of 11 per cent over the 2007 to 2012 period. The total value of spending on IT products and services should pass US$20 billion in 2008 and US$30 billion by 2012. Wireless penetration and the number of internet subscribers are growing rapidly. Economic growth is lifting millions into a middle class for whom computers are no longer beyond reach.

The consultations highlighted Brazil's strengths in livestock. While there are competitive factors, livestock genetics is seen as an area of potential opportunity for Western Canada. References also arose in consultations to Brazil's expertise in bio-fuels and potential technology transfer opportunities.

Venezuela
Venezuela is a country of vast economic potential but there are challenges. The business climate is turbulent and uncertain, particularly for private capital and foreign direct investment. Oil and gas agreements have required renegotiation including higher royalties and a requirement for joint venture relationships with the state-owned oil and gas company. The government is unlikely to move towards full state control of the economy, but the potential for further nationalisation in strategic sectors may curb private investment.

EDC sees opportunities in all sectors but most particularly in oil and gas, agriculture/food, and health, as well as in information and communication technologies (particularly rural). Canada and Venezuela have signed a Foreign Investment Promotion and Protection Agreement (FIPA) and a double taxation agreement.

The government will continue to use the state's wealth of energy resources as leverage to deepen diplomatic and commercial relations with countries it considers friendly within and outside the region. Connections with Cuba are strong. Venezuela helped Argentina during its financial travails and now holds 70% of Argentina's debt. Venezuela is making sophisticated foreign investments, for example in the pharmaceuticals area. ⁴²

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Colombia
The Government of Colombia has reduced public debt levels, improved security, and adopted an export-oriented growth strategy, resulting in a growing sense of confidence in the economy. Equal treatment has been granted to foreign and domestic investors. Colombia has experienced a sharp rise in investment and is expected to continue receiving strong capital inflows and be one of the best economic performers in the region.

Notwithstanding these advances, Colombia is faced with complex challenges including 50 years of internal armed conflict. The poverty level hovers around 50 percent and income inequity is extremely high. The problems of inequality and exclusion are exacerbated by the complex issues of illegal cultivation and drug trafficking.

EDC consider the potential for Canadian trade and investment opportunities in Colombia to be high in all sectors, but most particularly in oil and gas, mining, power, as well as in information and communication technologies. Assuming the FTA is signed with the United States, there will be opportunities in the manufacturing sector as the local industry looks to upgrade process and technology.

Wheat, pulses, newsprint and paper products, automobile parts, copper, fertilizers, barley and aluminum lead Canadian exports to Colombia. Canadian investment in the Colombian telecommunications and energy fields has increased consistently since the 1990's. Over the last five years, Canadian companies have also invested in the fields of agri-food, mineral exploration, pulp and paper, printing, shoe manufacturing, consulting, plastics, educational software, construction, and forestry. Colombia is very interested in associating with Canadian firms and this reflects the sharply increasing awareness of Canada as a source of technology and quality products. (The better appreciation in Colombia of Canada as a source of advanced technology may suggest generally that innovation relationships are worthy of more attention.) This perception owes much to the very high profile of Canadian companies active in Colombia such as Bata Footwear, Enbridge, Kruger Paper, McCain Foods, Nexen, Nortel Networks, President's Choice, International, Quebecor World and Talisman Energy. ⁴³

Despite the country's problems, Colombia's economy is diverse and relatively advanced. With duty-free access to the other Andean nations, and negotiations for a FTA with both the U.S. and Canada are underway, Colombia is ideally placed to take maximum advantage of regional developments.

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Chile
The Economist Intelligence unit places Chile as the best country in Latin America to do business, measuring indicators such as political and institutional environment, macroeconomic stability, policy towards private enterprise, foreign investment policy, financing, and infrastructure. There is wide consensus across the political spectrum in favour of economic liberalisation. Chile is known for its macroeconomic stability and for being a country open to foreign investment. Many foreign companies look at Chile as being a stepping-stone to managing or expanding their business into the rest of South America. EDC sees business opportunities across a wide range of sectors that match Canadian capabilities, including mining, infrastructure, power, and environmental applications.

Chile is a mining country. Mineral exports from the northern regions, predominantly copper, represent close to 50 percent of national foreign exchange earnings. Opportunities exist in exploring the estimated 1 million hectares of undeveloped mineral reserves in Chile. Mining equipment and supplies is an important opportunity area. There are opportunities for environmental protection technologies and expertise that reduces the environmental risks associated with mining. These opportunities will emerge as Chile enforces many of the environmental standards it recently adopted.

The following opportunities exist for suppliers of mining equipment/services for both new mining projects and existing mining operations:

• Mineral exploration (geophysics, mapping, diamond drilling, tunneling)
• Mining software (resource estimation, modeling, mine design and planning, maintenance and optimization)
• Processing technologies
• Contract mining
• Engineering services
• Environmental equipment (water and sewage treatment plants, effluent analysers, software)
• Environmental consulting (remediation and mine closure)
• Mine safety training and equipment
• Mining equipment

In the environment sector there are opportunities to sell advanced environmental services and consultancy, particularly to companies that export and have to adhere to strict E.U./U.S. technical/corporate governance standards. Regulations being implemented will generate demand not only for pollution control equipment, but also for technical environmental engineering and consulting services. Regulations require all wastewater to be treated by 2010. Investment in collection, transport, recycling, incineration, and final disposal of hazardous waste is anticipated.

A point arising in the consultations was the significance of aquaculture in Chile. Chile has become the leading world producer and exporter of fresh and frozen salmon. The industry cluster that has developed around the Lakes Region of Chile is world-class. Value added feed ingredients and plant based protein, for example in fishmeal, may be an opportunity area.

Peru
Peru is politically and economically stable, with annual economic growth of about 7 percent. Much of this growth is due to increased foreign investment in Peru and increased exports of minerals. Privatisation activity continues in Peru and many state-owned companies, particularly those dealing with ports, airports, roads, mining, oil and gas, energy, agriculture and telecoms, are earmarked for concession.

EDC sees growth opportunities for exports and investment in the following sectors: mining investment, mining equipment and services, power, and environmental applications and services. EDC expects that the economy will continue to be driven by strong investment, as a result of a number of projects in the mining and hydrocarbons sectors, as well as strong housing construction and public infrastructure spending. In November 2006, Canada and Peru signed a Foreign Investment Protection Agreement (FIPA).

Peru is a major player in the international metals marketplace. At present Peru's mining industry is second only to Chile's, and has the potential to become the leader in Latin America. Many of the world's top mining companies have made large investments in Peru. The government has issued concessions for exploration covering 12 million hectares, which it hopes will trigger further investment of $11 billion over the next four years. The mining industry is booming, as is the economy. Nonetheless, the industry must concern itself with important environmental, Indigenous Peoples, and regional development issues. Peru requires infrastructure to allow the mining industry access to mountainous regions and other difficult terrains.

In the oil and gas sector Peru has opened up large areas of the country to exploration. The government is encouraging a $1 billion modernisation of a state-run oil refinery and the construction of an export terminal for a huge liquefied natural gas project, which would be the biggest investment in Peruvian history. The government has granted more than 80 exploration contracts so far, covering 540,000 square kilometres.

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Argentina
In 2003, the Argentine economy began to recover from the financial crisis of the previous year and has since grown by over 8.5% for four years in a row, fuelled by investment and consumption. Prospects continue to be good. EDC sees solid prospects across a wide range of sectors, with strong growth opportunities for Canadian companies in oil and gas services, mining equipment and services, information and communication technologies, infrastructure, and power.

In the oil and gas sector the privatization of the oil and gas industry has created opportunities for foreign suppliers. Pipelines are being developed to export natural gas from Argentina to Brazil, Chile, and Uruguay and additional exploration within Argentina is proposed. Alberta interests are significant investors. Several Alberta-based companies have operations in Argentina, including Nova Gas, Norcen, AEC (now EnCana), and TransAlta Utilities.

In the ICT sector, Argentina's telecommunications market has been completely liberalised, creating one of the fastest-growing telecommunications markets in Latin America. The most dynamic segments have been mobile and wireless telecommunications, broadband, high-speed communications, and data transmission and internet-related technologies. Argentina possesses the most advanced software industry in Latin America, largely due to its highly educated workforce and modern telecommunications infrastructure, as well as attracting investment from global firms including IBM and Motorola. Argentina is also starting to gain a growing share of the global IT outsourcing sector, and leads e-commerce development online in the Spanish-speaking world.

Cuba
Cuba remains a heavily authoritarian state, with severe limits on political freedoms, including freedom of expression and the media. Cuba has been subject to a U.S. economic embargo since 1962.

Cuba demonstrates high achievements in human development such as free health care, free education for all, and a social welfare system. Although the new president, Raul Castro, is introducing a number of reforms, the Economist Intelligence Unit expects gradual, rather than sudden, political (and economic) transformation. EDC notes that Canada has an established and stable trade relationship with Cuba and the potential is high for Canadian trade and investment opportunities in the country in all sectors, but most particularly in extractive, infrastructure, and environmental applications.

Canadian mining companies such as Sherritt International are very active in Cuba. Cuban exports of nickel and cobalt, much of which is refined in Alberta, is an important source of foreign currency earning for Cuba. Cuba holds major reserves of oil. Recent discoveries have shown that Cuba may be able to produce as much as 18.3 million barrels of oil per year. Cuba has opened an 112,000 square kilometre area in the Gulf of Mexico for deep-water oil exploration by foreign companies. New oil and natural gas extraction technology has resulted in increased production from operations along the northwest coast of Cuba where Sherritt International Corporation is active, in partnership with Cuba government-operated Cuba Petróleo (Cupet).

Cuba has strengths in medical technologies, and may be an inexpensive source of good science. The notion of outsourcing research to Cuba arose more than once in the consultations. Cuba's interest in nanotechnology also arose in discussions.

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Opportunities by Sector ⁴⁴

DFAIT has identified the following sectors as offering clear market opportunities well suited to Canadian capabilities and interests in the LAC region ⁴⁵:

• Building products & construction (includes services)
• Electric power equipment & services
• Environmental industries
• Information & communications technologies
• Oil & gas equipment & services

While commodities such as wheat, pulses, potash, paper, and coal dominate Western Canada's current exports to LAC, the focus of this study was to identify opportunities for collaboration in emerging and/or science & technology (S&T) sectors. More details on opportunities by specific sector are addressed in the country-by-country coverage above and in Appendix C. Opportunities in S&T sectors are considered in section VII of this report.

Corporate Social Responsibility (CSR) practices and initiatives by Canadian companies, conducted fairly and respecting local communities, cultures, and values, can contribute to local sustainable development and improve the standards of living of LAC countries. CSR practices can create a competitive advantage and contribute to enhancing Canada's image as a partner of choice for business in the region. Western Canadian expertise in CSR, developed over many years of development experience in LAC, may be an area of commercial opportunity.

Mining
Mining opportunities for Western Canadians include exploration, investment, equipment, environmental and other services, and so on. Related technologies such as geomatics are important. Of the seven countries examined, mining opportunities are of major importance in Chile, Peru, Colombia, Argentina, and Brazil. Mining does not appear on the DFAIT list of best opportunity sectors (see preceding bullets), but is nonetheless a significant area of opportunity.

Canadian investment in mining in Latin America stands at $35 billion⁴⁶. The top countries for Canadian mining investment are Brazil, Chile, and Peru. Argentina, the site of significant Canadian exploration activity, and Ecuador, where Canada has a large share of mining activity, are also important investment destinations. An important objective is to have Canadian goods and services exports follow the mining investment.

Oil and Gas / Energy
Oil and gas equipment and services opportunities are important in six of the seven countries, excluding Chile, according to EDC. The most important oil and gas markets are Venezuela (conventional and heavy oil), Brazil, and Colombia. Despite price caps, Argentina is also an important market. Opportunities may extend to enhanced oil recovery and CO2 sequestration, with Trinidad and Tobago a possible market in particular.

There is thought to be about 50 Canadian energy services companies in the LAC market. Energy supply is an important consideration for the large mining industry that seeks Canadian energy expertise. Pipelines are a significant area of activity. For example, Enbridge owns 25% of a pipeline in Colombia. There is also interest in tidal, small hydro, and other Canadian alternate energy technology. Governance issues in the energy sector include Corporate Social Responsibility, sustainability, and renewable energy.⁴⁷

Life Sciences and Biotechnology⁴⁸
Generally, the consultations encountered interest in life sciences and biotechnology primarily with respect to genetics and bio-fuels in Brazil and Chile. EDC sees health related opportunities in Venezuela. Consultations also touched on Cuba's health related expertise. Aquaculture is an important industry in Chile, with strong historical links to British Columbia.

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Information and Communications Technologies (ICT)
ICT is identified as an important opportunity area in Brazil, Venezuela, Colombia, and Argentina.
Western Canada offers sophisticated technology solutions and IT services across a range of sectors. ICT is an area DFAIT identifies as a major opportunity area. Consultations suggested that generally with respect to advanced technologies, opportunities are more suitable to larger companies.

Using geomatics as an example of ICT, Peru, Chile, and Brazil are developing long term plans to improve their geomatics capabilities. The activity focuses on natural disaster management, land use planning, and spatial data infrastructure.⁴⁹

Aerospace
Western Canada's aerospace industry is increasingly engaged with Embraer of Brazil. Embraer is a strong company with an interest in Canadian suppliers. Embraer's activities in the Very Light Jet field show particular promise.

Environmental Technologies
The Canadian environmental industry is a global leader in hydrogen and fuel cell technology. Many Canadian companies specialize in environmental management for major resource industries such as oil and gas, mining, and pulp and paper. Canada's environmental industry is comparable in size to pharmaceutical and aerospace industries and equally sophisticated in its products and services offerings. The market for environmental goods and services in Latin America presents a prime opportunity for Canadian investment and trade.

Latin America's larger, faster-developing economies are turning their attention and growing resources to environmental reforms. Strong economic growth and market-oriented reforms in Latin America, such as extensive privatization and hemispheric trade liberalization, have increased awareness of environmental problems and have generated pressure to solve them. Some key Latin American nations have begun to strengthen outmoded or weak environmental regulations. Increased environmental awareness throughout Latin America is being matched, in many cases, by additional resources to deal with environmental problems.

Although reliable statistics on environmental goods and services exports are difficult to obtain, the market for environmental technologies in Latin America was estimated at $6-7 billion for 1992. The Southern Cone environmental market (Chile, Argentina, and Brazil) is now estimated at $1.7 billion and is expected to grow nearly 30 percent over the next decade. ⁵⁰

To tap into this potential, the United States is developing a new USAID program that matches the environmental technology needs of Latin America with the environmental products and services of U.S. companies. The Environmental Technology Network for the Americas (ETNA) provides information on environmental trade and investment opportunities in Argentina, Bolivia, Brazil, Chile, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela. To collect the information, ETNA uses an extensive network of local technical representatives and environmental business advisors who identify product, service, and infrastructure needs in Latin America. Similarily the government of Israel has created the Israel Export & International Cooperation Institute, supported by over 2,600 member firms, private-sector bodies, this institute advance business relationships between Israeli exporters and overseas businesses and organizations. By providing a wide range of export-oriented services to Israeli companies and complementary services to the international business community, the Institute helps build successful joint ventures, strategic alliances, and trade partnerships. ⁵¹

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