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Doing Business with Global Superpowers: The Risks and Rewards in Latin America

A New Era of Complexity for the Region’s Economy

Latin America has historically been a vital destination for international business, prized for its rich natural resources, growing consumer class, and proximity to the massive US market. But the region’s economic landscape is rapidly shifting as two global superpowers, China and Russia, aggressively expand their reach and influence.

Their escalating involvement has ushered in a new era of both uncertainty and opportunity for companies operating in Latin America. With promised investments and financial backing comes greater political complexity, data security concerns, and nagging geopolitical tensions that could leave businesses caught in the crossfire.

Navigating this terrain will require heightened risk management, compliance vigilance, and deep local expertise. Those able to successfully thread this needle stand to tap into immense new markets and capitalize on partnerships with two of the world’s most powerful economic forces.

China and Russia’s Growing Footprint

China’s presence has swelled considerably in recent years as it eagerly snaps up Latin American energy, mining and agricultural assets to feed its immense population and economy. The country has established itself as the foremost bilateral lender across the region’s governments. With its coffers overflowing with trillions in reserves, expect China’s ambitions in the area to continue unabated as it seeks to expand its global reach and some say, its former glory

Russia has taken a more muted approach, often leveraging its sizable energy resources and military connections to maintain influence, especially in countries like Venezuela and Nicaragua. But since its invasion of Ukraine prompted crushing global sanctions, wealthy Russian companies and oligarchs have been scrambling to park capital in safe havens like Latin America’s vast natural resource and real estate markets.

While their tactics and motivations differ, China and Russia’s growing entanglement in Latin America presents an increasingly complex tightrope for businesses to walk, and the global sanctions environment complicates financial and business operations. Opportunity beckons, but hazards lurk around every corner.

Where Risks Meet Compliance

Consider the delicate situation facing a multinational mining corporation pondering a major copper extraction project in Peru. While the potential rewards could be tremendous given high copper prices, the company would need to carefully weigh heightened risks from both a business and compliance perspective.

Financing or partnerships offered by entities linked to China or Russia could expose the project to sanctions or unwanted political pressure. Dealing with Peru’s tricky and sometimes corrupt bureaucracy will require impeccable compliance and public disclosures to avoid any shady transactions. And since China maintains a voracious appetite for Latin American mining assets, cyber espionage is a real danger.

This complex risk / reward analysis will need to take place across all functional areas of the business from procurement and operations to finance and legal. Compliance can no longer be the exclusive domain of a siloed corporate function. Especially when engaging with powerful state-linked enterprises, compliance must become ingrained in all business discussions where risks are elevated.

Guiding Principles for the New Landscape

The central challenge for multinationals will be developing an accurate understanding of just how much exposure to accept in exchange for the opportunities linked to China and Russia. Here are some guideposts to inform this emerging calculus:

• Build up local compliance and risk management expertise rather than relying on far-flung corporate teams. Risks will be hyper local.

• Continuously monitor the Latin American political landscape for shifts in power and policy and how it may impact potential investments.

• Maintain flexibility and solid contingency plans to pivot if conditions deteriorate.

• Proactively audit any technology systems that could be compromised by pervasive cyber espionage to test effectiveness.

• Foster close communication between business development and compliance/legal on potential new partnerships.

The Bottom Line

Dealing with global superpowers offers a classic risk/reward trade-off. Their capital can enable tremendous growth, while their opacity can enable tremendous headaches. Companies hoping to capture the upside must make smart calculated risks backed by state-of-the-art risk management practices fine-tuned for this new era in Latin America. Accepting major exposure without adequate preparation and security could spell disaster once geopolitical or economic winds inevitably shift.

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