LatAm INVESTOR: How can investors develop large projects in Guatemala and avoid social protests?
Enrique Crespo: CMI Capital built one of the most important hydroelectric plants in Guatemala. Renace is a power plant that generates approximately more than 300 MW, built over the course of the last 25 years. When we arrived in the area, we realised that we were in the middle of the ‘forgotten Guatemala’. The state wasn’t present in the area, which is in the north of the country, so there were vast social and economic gaps with the capital city. The lack of basic infrastructure, schools and public health facilities was appalling.
We applied our values, which go by the Spanish acronym of REIR, which is Spanish for smile: responsibility, excellence, integrity and respect. We try to live by those values every day and approach the project with those values in mind. We are convinced that you can’t have sustainable successful businesses over the long term in failed communities. We are firm believers in responsible capitalism. We don’t believe in the capitalism of the past, when the only thing you pursue is profit at any cost. We want to find the optimal equation with reasonable and competitive profit for shareholders but not at the expense of communities, suppliers and workers. We want to create value for all of them – that’s the capitalism we believe in, that’s why our purpose is to generate impact investments that drive sustainable development. Although we have faced some minor challenges over the last 25 years in terms of communities, which have been caused by some groups that wanted to manipulate local feelings, I am convinced that truth, justice and common sense always prevails.
We have been able to develop a wholesome social responsibility programme, where we have invested an important amount over the last 25 years and fostered opportunities with a life cycle approach to the betterment of communities. We are not experts in public health or education or social issues but we have partnered with experts in those areas to develop our social responsibility programme.
In 2012 we also partnered with the Social Progress Initiative, spearheaded by Michael Porter of Harvard University. His system is intended to establish KPIs for the progress of countries, but we challenged them to develop KPIs to measure the social progress of communities. We interact with 29 communities with a total of 21,000 people and this initiative set a baseline to ensure that we are having a positive impact. We developed 50 community KPIs, for example the education abandonment index, the respiratory illness index and an index for teenage pregnancies. We have monitored these KPIs for a decade and with our intervention we have managed to improve each one. This shows that the private sector can have a positive social impact with these large projects.
The issue is that these projects require massive investment. For example, we built 93 kilometres of road to connect these forgotten communities. If we had waited for the state to build them, we would probably still be waiting. For companies to make that sort of investment they need long-term legal certainty. Investors need to know that the rule of law will be upheld for the next 25 to 50 years. That is the challenge for the Guatemalan state if it wants to attract more investment to capital-intensive sectors.
LAI: CMI Capital’s $700million renewable energy bond issue was the largest in Central America; are investors rewarding your ethical approach?
EC: Yes, our approach is being rewarded. We aren’t in the energy business just to generate electricity, nor the real estate sector to build houses or the finance industry to make money. Our ultimate goal is sustainable economic development and that is increasingly what international institutional investors want to support.
Five years ago, we were probably not ready for the prime time but in 2021 all of the stars aligned. There was a strong demand for ESG investment opportunities in the region and we had just put together a well-diversified portfolio of renewable assets. They had all entered operation, which meant we could offer a mix of technologies and geographies that were generating profits.
We are convinced that you can’t have sustainable successful businesses over the long term in failed communities…
The issuance was a great opportunity for us to establish relations with institutional investors from all over the world. In the primary market around 50% of our investors were from the US, 30% from Europe and the rest from Asia and Latin America. So, we have a global footprint of renewable investors that believe in ESG and recognise that renewable energy can help Latin America become independent from fossil fuels. The capital we raised allows us to keep investing in greenfield projects in the region and also M&A growth. Our issuance was five-times oversubscribed, which shows the demand there was for our renewable energy portfolio. We could have lowered the yield on offer but we thought it was important to work with as many new names as possible.
LAI: Where are the best renewable energy opportunities in Latin America?
EC: Panama is definitely a country that provides opportunities. Especially for CMI Capital as it will be a new geography for us that will improve the overall country risk of the portfolio. As for Guatemala, there is currently a surplus of power generation capacity but we believe there is room to diversify the matrix. In particular there are opportunities in the short term for wind and solar. Prices are still attractive for good projects as long as we can secure profitable PPAs with distribution companies. The current trend of rising oil and coal price provides a huge incentive for Guatemala to become completely independent from fossil fuels.
The Dominican Republic is another attractive market. We are already present with the Mata Palma Solar Park but we see further opportunities because a large section of the matrix is based on fossil fuels. Enlarging our renewable footprint in the Dominican Republic will be a key part of our strategy.
LAI: What trends will shape Guatemalan real estate?
EC: Without doubt the regional real estate market has become more competitive in recent decades. In Guatemala real estate is still a local business and there are lots of opportunities here. Guatemala City is a valley surrounded by mountains and back in the 1970s and 1980s people began to move out of the central part of the valley to look for a larger home. People were prepared to trade a longer commute for a bigger house. But the transport infrastructure didn’t keep up with this trend, so for the last two decades traffic has been a big problem.
Now the trend is reversing. Across every economic segment of the population, people are returning to the centre of the city. They can no longer take the four hours of traffic per day and are now prepared to sacrifice space for quality of life. That trend is a great opportunity for a real estate developer because you can attend each segment of the market – affordable, luxury, etc. – with vertical solutions. The valley will grow upwards in the coming years. Another factor that enhances the trend is that 25 years ago people didn’t want to live in apartments because they wanted their own plot of land. That has changed in the last decades, partly because mass emigration to the US has shown many Guatemalans the benefits of vertical housing.
LAI: What can we expect next from CMI Capital?
EC: The pandemic shows the great opportunities for sustainable development and impact investing, which are part of our core. I think the current geopolitical and macroeconomic events and post-pandemic mega trends, that will shape the world for the next 25 years, provide massive opportunities for nearshoring. We are close to the largest market in the world, which is a massive opportunity for Guatemala and the region.
Our parent company CMI Corporation is particularly well-positioned with our capabilities in renewable energy, project management, logistics finance and food. At CMI Capital we will look to bundle our services to provide integrated solutions for investors. So, we won’t just build renewable projects, or finance vehicles, but put them together in a sustainable, ESG-driven package that will prove very attractive to international investors. Imagine, for example, a green-powered business park to take advantage of nearshoring.