Britain Embraces Pacific Alliance

December 13, 2013

A Growing Alliance

Regular readers will know that LatAm INVESTOR has long covered the Pacific Alliance trade group of Mexico, Chile, Colombia and Peru (here’s a quick refresher). We’ve often said that these open, dynamic countries are the best bet for foreign investors in Latin America. And we’re not the only ones to have noticed their potential. Panama and Costa Rica are also planning to join the Alliance.

But the most interesting development has been the reaction of countries outside Latin America. We attended the last Pacific Alliance summit in Colombia in May this year and reported how the leaders of Canada and Spain were busy pressing flesh and trying to drum up business for their home companies. Indeed, both those countries became observer members. And now the UK has joined them. Given that Britain isn’t on the Pacific and doesn’t speak Spanish, it might not seem like the most natural match. Yet officials at the Foreign and Commonwealth Office (FCO) have long been telling me off the record that they’re interested.

Observer Status

In practical terms, it’s hard to know what advantages being an observer will bring. In the future it could lead to becoming a member, and to a subsequent free trade deal. Although, for now that appears to be some way off. But in the short-term it will raise the profile of the Alliance in this country and highlight its trade potential to British companies. For example, this week the FCO and the Financial Times hosted Britain’s first Pacific Alliance summit. Just like the Colombian version it gave local firms and investors a chance to mingle with businesspeople and politicians from the Pacific Alliance countries and look for opportunities there.

The view at the conference was mixed. Several British investors that we spoke to on the sidelines like its member countries but were unsure how much “value added” the Alliance will bring.

But despite the reservations it seems clear that we will slowly see more and more investor interest in the Pacific Alliance countries, whether it’s British businesses setting up shop over there, or institutional investors putting their money to work in local capital markets. And it’s not just Britain that’s been made an observer: the Netherlands, Germany, Italy, France, Portugal, Turkey, Australia, New Zealand, China, America and South Korea have also jumped on the bandwagon.

A Flood of Capital

This newfound interest in the Alliance will lead to an influx of capital that will come at just the right time for these economies. Peru, Colombia and Mexico have launched huge infrastructure programmes that will need serious investment to get off the ground.

But it’s not just about the money. Opening up your economy to leading international companies has a positive effect for local firms and consumers. For example, in our Colombia report (see launch issue) the heads of multinational insurance companies told us that they are selling their policies at huge discounts because of the massive competition between international and local players in the sector. That’s great for Colombians buying their first insurance policy. Meanwhile plenty of local businessmen admitted to LatAm INVESTOR that working with European or American firms had forced them to make some of their business processes more transparent and accountable.