There are protests across Latin America, but I’m still bullish on the market
There have been large-scale protests across Latin America, from Mexico, to Chile and Brazil. But there’s no need for investors to worry. James McKeigue explains why.
On a quiet Saturday last month, I decided to wander around Guatemala City to see some of the tourist sites. It turned out I picked the worst possible day to do so.
As I approached the National Palace, a gruff policeman told me it was closed for the day. I wasn't allowed into the beautiful cathedral either, though at least here I got an explanation: "We're closing up because of the protests," said a security guard.
Given that the protest' consisted of a group of 40 or so placard-waving students, the lockdown seemed a bit over the top. Nevertheless I decided to hang around. And what I saw was far more interesting than any tourist attraction.
Slowly but surely the square started to fill with people most with Guatemalan flags or t-shirts. These weren't just students, but a real mix of ages, including plenty of families. The steady rain turned into a tropical downpour, but people kept coming into the square.
Then, just as I was thinking about going back to the hotel, the first of the marchers arrived: an organised block of loudly-chanting flag-waving protestors. Their arrival galvanised the people already waiting. As I hurried over, I realised that the block was actually just the beginning. It was the head of a long snake of marchers that continued pouring into the square.
The protestors that day (it was Saturday 16 May) were angry about a specific cause corruption in the Guatemalan government. Yet there are clearly many other factors involved, because the protests in Guatemala are being mirrored across the region. From Chile in the south to Mexico in the north, Latin America is being convulsed by popular protests.
Most investors won't welcome the sight of tens of thousands of angry protestors taking to the streets in the region's capital cities. After all, it reinforces the stereotype of Latin America being a volatile region troubled by the political instability which investors fear so much. I disagree. Today I'll explain why investors should hold their nerve and see these protests for what they are.
Protests are raging across Latin America, from Brazil to Venezuela
In Peru, the army has been sent on to the streets to respond to anti-mining demonstrators. The military personnel are active in three different provinces in southern Peru, and a state of emergency has been declared in Arequipa the country's second city.
In Ecuador, marches were arranged across a number of cities to protest against a new inheritance-tax law. With a visit of the Pope imminent, the government is taking a softer approach and trying to engage the opposition in debate.
We've also seen large-scale protests in Mexico, Chile, Honduras, Nicaragua and Brazil.
There's no need for investors to worry
The first thing that I should admit is that many although not all of these protests have got a fair point. For example, take corruption, which is at the root of many protestors' ire. If you look at Transparency International's Corruption Perception Index, most Latin American countries do pretty poorly. Another cause for protest is education. Again, the protestors are on to something, as many Latin American countries fail to provide adequate education for poor people.
That many Latin American countries have these problems clearly isn't good. But the fact that citizens are now holding the political elite to account about it certainly is. An interesting feature of these protests is the heavy involvement of social media.
I've written before how Latin Americans are some of the world's biggest social media users, and we're seeing it again here. Social media has empowered many Latin American citizens. It is currently being used to organise the protests, and to communicate a different narrative to the one that government may be pushing on traditional media.
Another, more fundamental, positive element of these marches is the fact that Latin Americans feel they can protest so freely. In the 1980s most Latin American countries were dictatorships, where any form of dissent was brutally suppressed. That legacy made many Latin Americans understandably cautious about taking to the streets to protest.
But now, a generation later, that fear is gone. It's a sign of the strength of Latin American democracies that its citizens know they can peacefully march against their government and hold their politicians to account.
The protests also reflect positive changes in Latin American society. Since 2000 economic growth has lifted an extra 50 million people into Latin America's middle class. That got lots of investors excited about consumer stocks but it also brought some indirect benefits. Having a bigger chunk of the population that is well educated, relatively wealthy and aspirational creates a more demanding electorate. And we're starting to see the consequences of that now.
It's now crucial that companies get locals onside
And this may be controversial, but international NGOs can also be behind some dodgy protests. The majority of international NGOs do a great job in tackling poverty and other issues in the region, but there are some that will automatically oppose any new development project in rural Latin America.
Sure, things like new mines, roads and ports must be handled with care. But they are also the basic building blocks that countries need for economic development. There's something a bit suspect about a rich European jetting into a poor country, protesting against basic infrastructure development and then flying back to the comfort of the developed world.
Either way, the fact is that nowadays in this climate of protest any infrastructure, mining or energy firm looking to execute a project in Latin America needs to make sure it builds great relations with local communities and has rock solid environmental planning. Massive projects, such as the $5bn Conga copper mine in Peru, have been shelved because of a failure to manage local opposition.
So before buying shares of a Latin America-focused firm we need to understand where its operations are, who is opposing it, and its strategy to get the locals onside.
Latin America's age of protest is, on the whole, a good thing. It shows that democracies are maturing and citizens are holding politicians and institutions to account. So it definitely doesn't make me any less bullish on the region. However, it's a reminder that a firm's ability to build maintain good relations with local communities can make or break a project.