Going South?

Far and away Florida's largest trading region globally, Latin America is the focus of the majority of the 30,000 companies in the state with international operations ["Exporting Florida's Goods," page 63]. Ninety percent of those companies are small businesses -- and among the small businesses, Latin America is often the sole focus of operations. The companies range from the numerous Miami-based law firms with offices throughout the region, to commercial developers building retail centers in countries such as Mexico, to hundreds of exporters that sent $6 billion worth of computers and electronics to Latin America in 2005 alone.

International corporate lawyer Francisco Cerezo says his clients "breathed a huge sigh of relief" after conservative candidate Felipe Calder?n was elected president of Mexico.

Uncertainty about the future was reflected in a non-scientific poll conducted earlier this year by WorldCity, a Coral Gables-based media company that analyzes international trade. WorldCity queried four dozen south Florida executives in charge of their companies' operations in Latin America about how the leftward political shift is impacting business. The results: 36% said it's had no noticeable impact; 12% said it's had a negative impact; 12% said it's had a positive impact; and 40% said it's too early to tell. So far, the businesses most severely affected by the neo-populism are multinationals such as oil and gas corporations. This year, for example, following Venezuela's moves to nationalize oil and Bolivia's threatened nationalization of hydrocarbon assets, Ecuador expropriated the assets of Occidental Petroleum Corp., which had invested more than $1 billion in the country since 1999.

Smaller foreign investors have been affected, too -- for example, when the Venezuelan government seized land "citing irregularities in their ownership status and claiming they were not being used productively enough," according to the Heritage Foundation's annual Index of Economic Freedom. John G. Murphy, vice president for international affairs at the U.S. Chamber of Commerce, warns that seizure of private assets and property could become more common: "An ambiguous attitude toward property and contracts, coupled with the sudden wealth arising from oil, gas and commodities in the region, makes for a volatile mix," Murphy writes. "More and more governments face the temptation to reach out and seize assets, discard contracts and change the rules of the game under which foreigners have made investments."

Cerezo, the international corporate lawyer, says changing rules was a big worry among his clients in Mexico, who "breathed a huge sigh of relief" when conservative candidate Felipe Calder?n squeaked by Obrador in the closest presidential election in that nation's history. Obrador, the former mayor of Mexico City, argues that trade agreements have been a bad deal, particularly for the poor. During his campaign, he vowed he would not honor some requirements of NAFTA, such as the 2008 elimination of Mexico's tariffs on corn and beans.
UF's McCoy says although Calder?n ultimately won, the fact that the margin was so close -- he won by only six-tenths of 1% -- and the fact that Obrador disputes the results could still mean a less-enthusiastic Mexican business climate. Calder?n's support simply may not be wide enough to push needed economic reforms, such as opening the energy sector to private investment, McCoy says.

Another long-term issue for Florida- based business is the emergence of China in the Latin American marketplace. Chinese imports from the area increased 600% to $21.7 billion from 1999 to 2004. President Jiang Zemin paid a two-week visit to the region in 2001. China's hunger for commodities is helping fuel the global economy and lifting commodity prices, which helps keep Latin America's economy healthy. But in the long term, China's current efforts to build supply relationships with providers such as Brazil and Venezuela could affect businesses in Florida and the U.S. "Everyone," says Mencia of Enterprise Florida, "is keeping an eye on China."

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