Welcome to our weekly roundup of news from South America.
Mosoj ESG provides information, data and analyses relating to South America integrating Environmental, Social and Governance topics to promote sustainable development.
Governance and the importance of being Earnest
This week’s event in the US was a stark reminder that governance matters. What happened at the US Capitol – and its ramification - is yet to be fully understood, but for many in South America, these scenes were erringly familiar.
For investors – especially in emerging markets, the strength of institutions and governance are of particular importance as there are some clear links between the deterioration of these factors and sovereign defaults. As such, all rating agencies incorporate an assessment of a country’s institutions and of their governance as a key determinant of a sovereign’s creditworthiness.
In South America, these factors generally tend to score badly. Using the Worldwide Governance Indicators (WGI) provided by the World Bank, we constructed a benchmarking framework to carry out an institutional assessment of countries relative to global peers. The scores below show these scores ranking from A = Very good to E = Very Bad based on 2019 data.
Source: WGI data and Mosoj ESG calculation
Whilst constructing the framework, we looked at possible links between these governance metrics and macro-economic factors. In particular, we examined the Corruption metrics vs a range of macro-outputs.
Interestingly, we found that corruption scores appear to be somewhat correlated to the fiscal surplus/deficit of a country, at the very least in directional terms (e.g. below Brazil and Peru).
Source: WGI data and Mosoj ESG calculation
This insight is particularly interesting as there appears to be a time lag – when one metric falls the other falls with a time delay - and the two parameters seem to follow a reflexive tune. Thus, when looking at the latest IMF forecasts on the various countries’ fiscal position for 2020, we can generally infer the direction of the other metric.
Given the depth of fiscal deficits caused by the pandemic, this doesn’t bode well for the corruption levels across South American countries, which could exacerbate inequalities and hinder economic recovery.
Source: WGI data and Mosoj ESG calculation
This is not good news for investors, and companies looking to do business in those countries as they will face increased levels of corruptions going forward.
For memory, in the last quarter of 2019, political protests took place in eight countries across Latin America and the Caribbean, with an estimated 400 dead, 15,000 injured, and billions of dollars in losses (WEF, 2019). Back then, before the world stopped because of the pandemic, social unrest were apparently fueled by sentiments of social and economic inequality, with citizens demanding greater redistribution of wealth, better social protection for the most vulnerable and a stop to rampant corruption. The latter will only get worse.
Finally, this metric and other general governance metrics also matter when dealing with trading partners. Thus, the recent events in the US will certainly raise more questions about how countries in the region should view their - declining - relationship with the US going forward. Particularly, when there appears to be another large player in town that is increasingly overtly willing to do business – with Chinese characteristics - with the region.
World Bank sees 3% expansion of Brazilian GDP by 2021
Public debt due in 2021 already reaches $262bn
Trade account shows a deficit of $42mn in December
Coffee export revenue in 2020 rises 7% to $ 5.5 bn
Central Bank loses $13.6 bn in foreign exchange transactions
Klabin raises $500 mn in sustainable bonds
MadeiraMadeira receives $190 mm and becomes new Brazilian “unicorn
Petrobras sells 49% of wind farms for $16mn
Treasury covered $2.4 bn in state debts in 2020
Covid-19: BNDES support to companies reaches $30 bn in 2020
MG should have investments of $2.5 bn in transmission, says EPE
Equatorial obtains funding of $430mm with BNDES
COVID-19: 30% reduction in the frequency of international flights
Primary deficit in 2020 reached $5.63 billion
Argentina’s public debt rises to almost 100% of the GDP in one year
Trade balance with Brazil shows a deficit of $700 million in 2020
Argentina aims to boost gas exports to Brazil by up to 20 mn cubic metres/day
YPF seeks $400 million in financing and puts “Torre Pelli” up for sale
Mergers and acquisitions fall 75% in value compared to 2019
The government launched productive investment credits for SMEs, the first tranche is $235.05mn
Access to finance grew by 59% in 2020, but the rate increased
Oil company Vista Oil increased by 20% hydrocarbon production in Argentina
Argentina’s Ripio acquires second-largest crypto exchange in Brazil
Argentina: the country with the lowest amount of bank loans and deposits in Latin America
Chile threatens legal action to get Albermarle to disclose lithium reserves
Falabella to invest $796mn in 2021 to strengthen technology and logistics
Chile’s Codelco board approves $1.383bn overhaul of Salvador mine
New family support bond will have a fiscal cost of $470mn
Chilean copper exports reach $36.3bn in 2020
Withdrawal of 10%: More than 3 mn people exhaust their funds and payments amount to $31.3bn
IPEC closed 2020 with an average value of 26.4, the lowest in 19 years
Projected investment in 5-year mining rises 11%, from $19.5bn to $21.7bn
The Treasury fails to collect $192mn in 2020 due to the impact of COVID-19
New car sales decreased by 30.6%, the worst fall since 2009
Engineering exports accumulate a contraction of 35% in 2020
The World Bank adjusts forecasts of Colombia’s GDP projection for 2020 to -7.5%; 4.9% in 2021
Colombia grid connection requests hit 53GW
Colombian oil production falls 13.5% in November
Cocaine production in 90% of deforested land in Colombian national park
During 2020, 32 companies in Colombia issued $3.8 bn in debt bonds
Colombia’s Argos to pay US$20mn to settle US anti-trust probe
Colombian coal exports fall 59% to near 12-year low in November
New vehicle sales in Colombia fall 28.5% in 2020 due to COVID-19 pandemic
Vestas wins first EnVentus order in Latin America for a 504 MW project in Colombia
Colombia allocates more than $615 mn for conflict areas
Fortunes over $4.3mn will pay wealth tax
World Bank projects 3.9% growth for Bolivia in 2021
EIG sells stake in Brazil-Bolivia pipeline, wants to bid for 51% of Petrobras assets
FCA carried 34% less cargo than projected in 2020 due to COVID-19
More than 1,300 people have registered for VAT refunds
Echo Energy signs cooperation agreement with leading Bolivian energy company, GTLI
Anapo estimates that the country could generate $1.2 bn from value-added soybean exports
Central government allocates $39 mn to regional governments for hiring healthcare workers
Entrepreneurs plan to generate $1 billion per Ichilo-Mamoré waterway
The government will invest $3.73mn in three basin and water resource management projects
Bank profits dropped by more than 42% between January and November
YPFB plans to invest $756 million this year