First of all forgive the late summary, as this conference happened almost a week ago (March 25-16) but for a diverse number of reasons it has taken me 4+ days to sit down calmly to put my thoughts into paper. With that said, congratulations to the organizing committee of the Latin American Business conference at UPenn for an outstanding job bringing in top speakers, resources and a bright audience to make the event a success after a 5 year hiatus. As a fellow MBA student at Maryland I am impressed and can only hope that we are equally successful in our plans to create a similar event in the DC Area. (More info about those plans will be provided in a future post)
So without much more talk, here's what happened:
Alvaro Uribe and the Three Pillars of Progress: The Wharton conference included a key note speech by the former President of Colombia, Alvaro Uribe, who spoke about the success of his economic policies in the country and how they may apply to other countries in the region. He shared with the audience what he believes to be the secret sauce of the turn-around: security, social cohesiveness, and the universal inclusive right to private property. Sure, there was a lot of political ramble in his speech (after all, he IS a politician) but ignoring the attacks to the left and justification of some questionable past policies, he brought an interesting approach to the "Latin America Problem". He avoided the overused references to corruption that some other experts use to easily dismiss the issues of the region and went deeper into the conversation, emphasizing the importance of building internal security as a means to:
1. Attract investment
2. Retain talent (avoiding the brain drain or emigration of talented professionals due to the threat of crime and instability)
3. Set the base for Social Cohesiveness
This third outcome of "Social Cohesiveness" comes from the investment in education, culture and the arts once the country has been stabilized from the first issue of security. Social Cohesiveness builds on the country's identity and reinforces people's trust in their government. This confidence in turn encourages people to invest their lives in that place, taking advantage of the educational and legal provisions established to start their own businesses and acquire property. Mr. Uribe made a strong case for the reformation of legal and government institutions to promote business efficiency. He also advocated the creation of equal playing fields (legaly and socially speaking) to make private property and the pursuit of entrepreneurial ambitions an inclusive right of all citizens as opposed to an exclusive right of the few able to navigate the system through power and connections.
I definitely connected with this message although slightly disagreeing on the relationship between security and education. While in Uribe's view of the world (probably influenced by the special and extreme case of Colombian violence in past decades) security must be implemented first to attain cohesiveness, I would make the case that these need to be implemented in a parallel way for most other countries in Latin America. After all, most violent groups grow and recruit their followers by taking advantage of ignorance and the lack of opportunities. Therefore security cannot just be about getting rid of the completely rotten apples but rescuing as many people as possible and winning minds with education and access to a decent life. By the way, this is where I believe most left vs right arguments clash in every country in the world.
Panels
There were several other keynote speakers that although outstanding are probably not worth writing about since either a) I missed their sessions or b) I did not find them particularly enlightening. In any case, one could choose to attend 2 out of 4 different panels and I chose to attend: "Keys to Success in Latin America" and "Private Equity in Latin America". I can probably summarize the take-aways from both in the following points.
- While Brazil is growing rapidly, it is not the only success story. Other countries such as Chile, Colombia and Argentina are proving to be successful players as well. As a whole, professional opportunities in the region look better than ever for the educated worker.
- The Private Equity industry is alive and well in most of the region thanks to unprecedented government interest/incentives in developing their home-grown enterprises.
- Most private equity takes the form of venture capital and growth capital in a variety of industries, not just tech. Because of the growth stage of these markets, there has not been an appetite or pressing need for investment in distressed companies.
- A large amount of VC investment in the region goes to buying out medium sized family-owned businesses to help them grow to the next level. 3x returns are common.
- There is an increasing amount of Asian investment in the region. Chinese investors in particular are looking to South America in search of resources/inputs for their operations back home.
- Although the majority of VC funding comes from foreign investors, a series of government policies are encouraging regional pension funds and wealthy individuals who used to place their money abroad, to reinvest their money in local funds. This is a great sign for a region that has traditionally seen capital come in but ultimately exit to investors in other countries, leaving too little lasting impact behind.
- We cannot claim total success in a country's economy (regardless of returns) if the majority of the country is still in poverty. Ultimately this situation breeds discontent, inequality and instability. Fostering a middle calls and spreading out opportunities across all social sectors is vital in the long run.
- Personal Business Take: Latin America must be careful about the protection of its resources. International capital is a welcome blessing but could be a curse if the right laws and regulations are not put in place. A potential "economic gold rush" could once again make the region vulnerable to interests that reside outside the region without regard to the infrastructure and healthy progress of its people. The best thing to do is balance international investment with regional/local investment that keeps an interest in the long term well being of each country.
- Personal Political Take: International capital is capricious and frankly could not care less about democracy. It will make investment decisions (rating national bonds, injecting/extracting money in local businesses, etc.) that will affect the well being of the country and a government's ability to implement policy. Yet, these decisions are likely to have nothing to do with the "right thing to do" and be all about returns and what candidate is most likely to implement business-friendly policies. A country may in fact be doomed by simply electing the wrong person (from an investor's perspective) via a democratic process and wake up the day after the vote to a market downgrade. If that is the case, international capital will make the life of that country impossible, effectively sabotaging the country's progress until the next election where people will presumably elect the right person for the job. Everyone will then praise that right person for magically obtaining better bond ratings and analyst reports by the next day without hardly lifting a finger. Their overnight success will be solely due to projecting what the markets ironically refer to as confidence. That's the sad state of the globalized economy that we live in. That's why I am all for well regulated capitalism, with leaders that have enough character to resist these pressures (that arise in every country, developed and developing) without going crazy. I hope that Latin America finds those leaders and keeps them...just not for more than a decade each. That's another story...
