Latin Americans are “seizing the opportunity” to invest in Spain, which last year beseeched banks and corporates from across the region to put money in the struggling country, the head of the IDB said.
Assailed by mounting debts, a shrinking economy and a banking system that lacks the ability to lend, Spain’s desperate leaders are turning to an unusual source of funding in the search for growth: capital-rich Latin American investors.
Spanish premier Mariano Rajoy set the ball rolling in November, saying that Spain would accept Latin American investment “with open arms”.
Speaking at this week’s IDB annual meetings in Panama, the bank’s president Luis Alberto Moreno said Latin American businesses were investing abroad and becoming “global in nature”.
“They are seizing the opportunity that the value of assets offers, which because of the crisis in Europe is one that merits the risks,” he said.
“What you’re seeing is the global emergence of Latin American companies. One of the things we are looking at is how to help mid-size companies in Latin America becoming more global as well. It’s the next phase we will be looking at.”
Experts believe that once the gates are open, Latin American money will flood in, reversing a 500-year southerly tide of capital. Moreover, deals are expected to come in all shapes and sizes, from basic asset and branding acquisitions by major blue chips, to mid-sized Latin American firms seeking to snap up distressed assets on the cheap.
In November, the IDB rolled out a new $420 million credit facility for medium-size regional firms seeking to expand overseas.
Cate Ambrose, president of the Latin American Private Equity & Venture Capital Association told Emerging Markets: “What you are going to see is [Latin American] financial institutions giving money to the world’s leading private equity firms to make European acquisitions on their behalf.” That process is already under way: buyout groups like Blackstone, KKR and Carlyle Group are quietly being tapped up by Chilean, Peruvian and Colombian pension funds to cut European deals, Ambrose added.
Moreno pointed to a generational shift in trade flows. Before the financial and eurozone debt crises, he said there was emigration to countries like Spain, but Spanish capital headed to Latin America. “Now, you see Spanish professionals coming to Latin America and income flows to Spain from Latin America.”
That process of reverse investment, though only in its early stages, makes good financial sense for everyone. Spain’s economy continues to crater – it contracted 0.8% in the final quarter of 2012 – while its leading corporates are slowly disappearing from the region. In 1999, Spanish companies invested €32 billion in Latin America. By 2011, that total had fallen to just €9 billion.
In recent years, Latin American corporate giants like Brazil’s Vale have focused on expanding into resource-hungry Asian economies, notably China. But as the eurozone’s economic woes slowly abate, many are casting their gaze north.
Despite the wretched state of the twin Iberian economies, both Spain and Portugal offer Latin American investors the communal bonds of history, culture and language.
- Like every year, Emerging Markets daily newspaper covers the Inter-American Development Bank’s annual meeting, held in Panama in mid-March. Pick up your copy at the meeting, read the news on our website and follow us on twitter @emrgingmarkets