Europe to Seek Assurance Latin America Won’t Follow Chavez Way

European Union leaders will look for investment opportunities in Latin America this weekend as they seek reassurance the region won’t follow Argentina and Venezuela in expropriating foreign assets.

German Chancellor Angela Merkel and Spain’s Prime Minister Mariano Rajoy are among 43 heads of state flying into Santiago for a summit of the European Union and the Community of Latin American and Caribbean States that starts tomorrow. Across the table from European leaders will be Argentine President Cristina Fernandez de Kirchner, who seized Spain’s Repsol SA (REP)’s 51 percent stake in Buenos Aires-based YPF SA last year.

European companies, the biggest foreign investors in Latin America, are looking for opportunities in a region that has grown three-times faster than Europe in the past decade, has a burgeoning middle class and needs billions of dollars in infrastructure investment. The seizure of companies in Argentina, Venezuela and Bolivia last year will act as a cautionary tale, said Diana Villiers Negroponte, a non-resident senior fellow at the Brookings Institution.

“Investment opportunities are now limited in Europe, and there are opportunities in Latin America energy and infrastructure” industries, Negroponte said by phone from Washington on Jan. 23. “European companies are going to have to be careful, which is why joint ventures may be the preferred way forward. I’d still be very nervous about investing in Argentina, and Bolivia has its problems too.”

Argentina seized YPF last year after Fernandez said it had failed to invest in the country’s largest oil producer. Bolivia’s army and police in December occupied the offices of Iberdrola SA hours after President Evo Morales ordered the nationalization of four business units owned by the Spanish energy company.

Direct Investment

The conference kicks off today with meetings of business executives, including the heads of Madrid-based Endesa SA and France’s GDF Suez.

Endesa controls Endesa Chile, which owns a 51 percent stake in the country’s largest hydroelectric project, HidroAysen, currently stalled amid disputes over its environmental impact. GDF Suez has energy assets in Argentina, Brazil, Chile, Peru and Central America, including the Guanacaste wind farm in Costa Rica.

The EU’s share of foreign direct investment in Latin American dropped to 40 percent between 2006 and 2010 from 43 percent in the previous six years as the global financial crisis sapped funds, according to the United Nations. It still exceeds investment from any other region.

Venezuela Seizures

Total foreign direct investment plummeted 20 percent in the first half of 2012 from the previous year in Venezuela, whose President Hugo Chavez has nationalized more than 1,000 companies or their assets during his 14 years in office, including Madrid- based Santander SA (SAN)’s local unit.

European delegates probably will use the summit as an opportunity to work with other countries in the region to ensure they don’t follow the path set by Argentina and Venezuela, Claudia Schmucker, head of the globalization and world economy program at the German Council on Foreign Relations, said by phone on Jan. 23 from Berlin.

“We want to make sure in bilateral talks that this is not the general direction the region is going,” Schmucker said. “So I would think we’d try to give another push to the countries that we really like and hope that they won’t go in that direction.”

‘Different Directions’

Europeans will prefer to invest in countries that are seen as more friendly to foreign investors such as Colombia, Chile, Mexico and Peru, Michael Shifter, president of the Washington- based Inter-American Dialogue, said by phone Jan. 22.

Chile has the most open trade policies of any country in Latin America and ranks 14th in the world, followed in the region by Uruguay, Costa Rica, Peru, Panama and Mexico, according to the World Economic Forum’s 2012 ranking of 132 countries for trade openness.

Brazil, Latin America’s biggest economy, ranks 84th, followed by Argentina at 96 and Venezuela at 130.

“This is a Latin America moving in lots of different directions,” Shifter said. “In terms of its relationship with Europe, I think there will be some set of countries that are going to be very, very interested in deepening their commercial relationship, and Europe will find some that are very high risk.”

To contact the reporter on this story: Randall Woods in Santiago at rwoods13@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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