Social unrest in Latin America complicates foreign investment – BRINK – Global Business Talk and Insights

Social unrest is increasing around the world, but Latin Americans are taking to the streets faster and more violently than most other countries in the world. Recent unrest in Ecuador and Panama are just two examples of widespread street protests venting their governments’ anger over each country’s political and economic difficulties.

Small communities in Latin America are increasingly rising up against large commercial investment projects that are perceived as damaging to the environment or violating the territorial rights of minority and indigenous groups. So what are national governments doing to protect investors and keep businesses open? Not much, it turns out.

Driven by local issues

Two recently elected presidents—Gabriel Borich in Chile and Gustavo Petro in Colombia—were even the architects of street protests before they began their campaigns.

Much of the unrest is related to local issues. As the economic environment worsens due to higher fuel and food prices, governments are doing little to mediate the growing conflicts, although such passivity can affect economic activity.

Ecologicalcultural and local influences carry more weight on public opinion today than before, making protests more politically sensitive for governments to deal with.

The mining industry is heavily affected by this trend. Although the number of conflicts is not entirely clear, Latin American Observatory on Mining Conflicts has recorded 284 conflicts across the region, affecting countries from Mexico to Peru, and they appear to be increasing. The case of the Las Bambas mine in Peru is the most striking example of both the growing conflicts and the government’s unwillingness to deal with them. National governments in the region, many of them elected on progressive environmental and indigenous platforms, have been reluctant to take on the socially active electorate that catapulted them to power.

Digging is directional

At the Las Bambas copper mine, one of the most important in the world, its Chinese owners had to stop operations because the road leading to it was blocked for 400 days by nearby local communities. Three thousand workers were laid off at a time of enormous economic difficulties in the country.

Peru’s new government of Pedro Castillo has been slow to act, prompting the National Society of Mining, Petroleum and Energy to call for the government’s responsefickle and addicted,” confirming that “Las Bambas is being blackmailed by leaders who demand lucrative contracts.” Today, the conflict continues, with efforts for dialogue continuing. Chinese companies have too meets resistance in Ecuador.

But mining is not alone. In Colombia, invasions of private land by indigenous activists have been ongoing for several years. But the situation may be on the verge of escalating with the election of President Petro, given his campaign promises to address land rights in Colombia. More recently, sugar workers in the Valle del Cauca region near Cali have complained of increasing intrusions into their fields by masked individuals, causing damage to operations. In a tweet, President Petro did not condemn the land raids and instead called for dialogue to reduce tensions, but that reflected another flashpoint affecting private business.

In Chile, the largest indigenous minority, the Mapuche, occasionally engage in open rebellion in the south of the country. The country’s main north-south highway, for example, has been subject to indiscriminate attacks on cars and trucks traveling on the road. On May 17, amid increased aggression from both the Mapuche and their opponents, the government of center-left President Gabriel Borich announced state of emergency in the regionalthough he condemned similar measures when they were used by right-wing predecessor Sebastian Piñera.

The desire to squeeze foreign investors

What is driving the growing social unrest targeting private business is more than current global economic challenges. A powerful new cocktail of problems is accelerating the drive to clamp down on companies – especially foreign investors – that are believed to be reaping windfalls from Latin American investments.

Ecologicalcultural and local influences carry more weight on public opinion today than before, making protests more politically sensitive for governments to deal with.

Moreover, a growing cadre of center-left governments in the region, such as President Gabriel Borich in Chile, President Pedro Castillo in Peru, and President Gustavo Petro in Colombia, have made environmental policy a large part of their political discourse. Both Presidents Borich and Petro pledged to support Escazu Agreement, which seeks to expand “rights of access to environmental information, public participation in environmental decision-making, and access to justice in environmental matters.” So far, 13 countries in the region have accepted the agreement.

Governments stay away

Government inaction in the face of these conflicts raises political risk for foreign investors, especially in key strategic sectors such as mining that drive many Latin American economies. A recent IMF study found this “Mid-major [social] the riots were followed by a 1 percentage point decline in GDP six quarters after the event. Riots motivated by socio-economic factors are associated with a sharper contraction in GDP than politically motivated unrest.

Extractive industries – mining, oil and gas, forestry – have long been accustomed to operating in inhospitable environments. But something new is happening in Latin America. Instead of protecting investors, who—for better or worse—represent important tranches of national GDP and employment, national governments choose to stay aloof from social unrest that closes factories and lays off workers.

Latin America’s new left leaders are reluctant to be seen as working against the environmental and indigenous groups that helped them to power. It is no wonder that foreign investors are eyeing the region with caution.

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