Chile’s protests in October caught most Latin American analysts by surprise. None more so than me, as I’d booked a holiday there at the time and consequently got to see the breadth and depth of the protests first hand. One thing that struck me was the widespread nature of the turmoil. In every town I visited, from the far north all the way down south, the defaced statues, graffiti and damage demonstrated the scale of social anger against the status quo. That shock was reflected in financial markets where equities, bonds and the Chilean peso all fell as investors rethought their positions on what was meant to be Latin America’s most stable country.
Looking ahead, Chile’s problems aren’t going to quietly disappear in 2020. The protests opened the floodgates to a wide range of social complaints. Large numbers of Chileans feel the pension funds, health service and education system are failing them. Even if you don’t agree with all of the protestors’ demands it’s clear that they do have some legitimate grievances. For example, Chile’s education system isn’t boosting social mobility. The best jobs still go to those who studied at the elite schools and universities. Of course, that’s true to some degree in the UK, but inequality is far more marked in Chile. Likewise, the pension system had promised to provide an income worth 70% of workers’ final salaries when they retired. The actual results have been disappointing with male retirees getting 30% to 40% and women pensioners 20% to 30%.
“In every town I visited, from the far north all the way down south, the defaced statues, graffiti and damage demonstrated the scale of social anger against the status quo…”
Fixing these longwave issues will not be easy or rapid, which is why we can expect the social discontent to continue in 2020. Moreover, protest has proved itself to be an effective mechanism for airing social anger in Latin America. After a brief attempt to quash the unrest with tough police and military action backfired, the government backed down and quickly started to acquiesce to the protestors’ demands. That means it’s going to continue to be a natural recourse over coming months if people feel the government isn’t solving their issues.
Positive business outlook
But while the social issues seem intractable the outlook for business remains positive. The government has been quick to recognise that the constitution needs to be changed – a symbolically important concession given that it dates back to the Pinochet era. The big threat for international investors in Chile would be if the protests forced a dramatic change in the country’s economic model as part of the new constitution. But that seems unlikely to happen. Any changes must be approved by a two-thirds majority through a special constituent assembly, which will likely water down any truly radical proposals. As yet it’s unclear how much of Chilean society agrees with the protestors and to what extent. After all, President Piñera was elected in 2018 with a comfortable majority. The challenge for Chile in 2020 is to democratically channel protesters’ grievances. Depending on its success protests are likely to continue to flare up during the year but the overall picture for business remains positive.
In Colombia the protests were sparked by different issues to Chile. Strikes morphed into street demonstrations protesting against austerity measures and an unevenly-implemented peace deal. The financial fallout was more limited as Colombia has a resilient history of growth in the midst of conflict, which perhaps meant investors were less fazed by the protests. Yet the challenges for the government are not wholly dissimilar to Chile. It needs to find a way to co-opt the different voices on the streets – from indigenous movements to students – and find a way to address their key concerns in a transparent democratic manner. Clearly there is a democratic deficit, in the sense that serious discontent was not being picked up or expressed through conventional means and so spilled over into anger on the streets. Just like Chile you can easily see how protesters are likely to revert to direct action in Colombia if they feel that their needs are not being met through the ongoing talks between the government and civil society groups. So, this will rumble on in 2020. However, again, I remain positive on the outlook for businesses in Colombia.
The reason for my optimism is that, even if protests re-emerge, international companies should still be able to work profitably. Ultimately individual firms aren’t the target of the protestors’ ire. Of course, there may be some firms working in politically sensitive areas that could be affected – e.g., oil and gas, privatisations. And, of course, it is vital that foreign firms are good corporate citizens – you need to demonstrate that you’re benefiting the economy and wider society by generating jobs, protecting the environment and running social development programmes. But the essential point is that these are not a series of revolutions that are upending the entire order – instead it is grassroots society airing disapproval of the uneven distribution of its benefits and risks.
Bolivia and Brazil
The country I am probably most concerned about is Bolivia. I think protests will not just continue in 2020 but have the potential to worsen. Interim president, Jeanine Añez Chávez, took over in order to re-run the 2019 elections, but she has started making decisions that go beyond the remit of a caretaker ruler – taking actions that risk further antagonising supporters of former president Evo Morales who still dominate both Chambers of the Legislative Assembly. Meanwhile, Morales, who has moved from exile in Mexico to Argentina, is expected to be closely involved in the 2020 election- which is somewhat ironic since the protests removed Morales because many felt he no longer had democratic legitimacy. Unfortunately, the country is so polarised that whoever wins the 2020 re-run is likely to face a similar criticism.
“these are not a series of revolutions that are upending the entire order – instead it is grassroots society airing disapproval of the uneven distribution of its benefits and risks…”
One of the most interesting aspects of the 2019 Latin America protests was how, publicised by social media, protests in one country swiftly inspired unrest in others. The rapid success of protesting student and indigenous groups in Ecuador, where they persuaded the government to drop its proposed fuel price hike, demonstrated to neighbouring societies what a powerful tool protest can be. In 2020 it would not be too surprising to see protests in Brazil, considering the political divisions there. Indeed, we saw widespread Brazilian unrest in 2014. However, even if protests do break out in Brazil, I don’t believe they will derail the government as they did in Colombia, Chile or Bolivia. One flashpoint could well be the environment and the handling of issues relating to managing the Amazon. At Canning House we will be exploring these themes on the 22nd of April at our annual Renewables and Sustainable Development Conference. We’ve decided to include forestry for the first time as we believe it’s an increasingly important component of Latin America’s sustainability footprint.
To sum up, we can expect more protests and unrest in Latin America in 2020. But, with the possible exception of Bolivia, this in general shouldn’t worry British firms although, as always, they should be sure to stay well informed on developments – e.g., by attending Canning House’s business events and by reading LatAm INVESTOR. The region will continue to respect the rules of the game and reward international businesses that are good corporate citizens.