Cuba is among a number of countries, including Mexico, El Salvador, Colombia and Chile, offering up incentives in a bid to lure more U.S. business investment. Photography of Havana by iStock
Jack Jensen has seen plenty of changes since he set up shop as an importer more than 30 years ago at the Port of New Orleans. During that time, lowered trade barriers, improved infrastructure and technological advances have made doing business in Latin America cheaper and more practical.
In the early days, Jensen focused his attention on Central America for importing produce and agricultural products, then later began buying and transporting Brazilian granite. Today, operating as Jensen Cos., he is one of the largest importers of granite in the U.S.
Jensen points to the advent of shipping containers as having the single greatest impact on the importing industry. “Back in the 1980s and early 1990s, most product was stacked into the hull of a vessel,” he says. “In the 1990s, the containers took off like crazy. Today, virtually everything is shipped that way, and it has made the world a much smaller place.” The containers allow for more efficient transportation, as well as easier and less expensive offloading at the port.
Jensen’s success story is not unique. Other companies across Louisiana and the South are either expressing interest or actively doing business with Latin America. The potential profitability of tapping into the growing “world market” afforded by NAFTA and other incentives is too hard to ignore.
Recognizing the growing interest among its clientele, Baton Rouge law firm Breazeale, Sachse & Wilson has increased efforts to brief clients about the incentives and potential pitfalls of doing business in Latin America. Frequently leading the discussion has been Saul Newsome, a member of the firm who specializes in international trade and foreign direct investment.
PROCEED WITH CAUTION
Newsome acknowledges that the biggest hurdle faced by some Latin American countries is perception.
“U.S. industry is looking for stability in the government, stability in the laws and freedom from corruption,” Newsome says. “Some countries are making headway in this regard. Peru has been cracking down on what was perceived as corruption within its own national police. They’ve tackled that head on.” Additionally, Peru has enacted pro-market policies to encourage foreign investment by guaranteeing that businesses can repatriate their money without trade tariffs.
Chris Kane, an international law specialist with Adams & Reese in New Orleans, agrees that the Andean countries of Peru and Chile have made significant advances, particularly in international patent protection. “By and large, intellectual property protection there is in good shape,” Kane says.
Kane is “bullish” about the current expansion of the Panama Canal, which is set to open on June 26 and will allow for the passage of larger ships with greater cargo capacities. The project will double the canal’s capacity by creating a new lane of traffic, and allow access to a new mega-vessel—the New Panamax—which can carry twice the amount of cargo as the next largest vessel. He says this could further strengthen Louisiana’s connections to the west coast of South America.
Many Latin American countries have taken some recent positive steps to remove trade barriers, although others, such as Venezuela and Bolivia, still have a way to go. “Thankfully, it seems like their democratic process is re-balancing, so perhaps in a couple of years they will have a better appearance,” Newsome says. “However, their foreign investment is dismal right now.”
All too aware of its reputation for drug trafficking, Columbia has taken steps to sweeten the deal for some industries. “Investments in the hospitality industry—primarily hotels—have a 30-year tax incentive where they are not taxed on income,” Newsome says. “That’s a pretty attractive option.” One hotelier to take the bait, Starwood Hotels and Resorts, currently has seven hotels operating in the country.
Mexico is perhaps the most adept at attracting U.S. business, largely because of NAFTA and other incentives. “Mexico recently updated its infrastructure laws,” Newsome says. “They’re opening up some of their oil and gas and governmental projects, and are allowing foreign companies to partner in that area. It represents a significant, large new market.” Additionally, Mexico’s Maquiladora, or IMMEX sector, now allows for cross-border manufacturing to be exempt from import/export duties.
Newsome acknowledges that a primary motivation for launching a physical location in Latin America is lower labor costs. “This is perhaps a sensitive topic, but the cost of labor is important,” he adds. “For better or worse, the U.S. is a rich nation, comparatively. The cost of our property, the cost of our goods … they just cost more. When you’re talking about something that is very labor intensive, it might make more sense to structure your business so that those type of activities are done abroad.”
THE CUBAN QUESTION
Softening trade barriers with Cuba have generated a lot of excitement recently, but opinions differ as to whether now is a good time to invest. Engage Cuba, a coalition of private companies and organizations working to end the Cuban embargo, recently launched a Louisiana State Council to bring together prominent leaders from across Louisiana’s agriculture, manufacturing and business communities who support increased Louisiana-Cuba trade.
The group is seeking to lower, if not altogether obliterate, trade restrictions with the long-isolated country. Louisiana’s rice industry has been particularly interested.
“We can already do some agricultural trade with Cuba, but it’s under tight restrictions,” says James Williams, president of Engage Cuba in Washington, D.C. “We’re not allowed to offer private credit of any kind. Even though we have a natural market to be the primary exporter, they’re getting their rice from elsewhere because they can get 180-day or 365-day terms.”
There are additional shipping restrictions on ships and vessels that enter a Cuban port “so there’s a bunch of things that make trade non-competitive,” Williams says.
Among clients at Breazeale, Sachse & Wilson, there is some uncertainty about the timing of a Cuban investment.
“They fear that by waiting for change they might be waiting themselves right out of an opportunity,” Newsome says. “But I tell them that they need to go in very educated and with their eyes wide open, knowing what the limitations are. Ultimately, you could risk losing your business or investment.”
The hope, he says, is that things will trend in such a way that there will be more securities and protections for doing business in Cuba.
“There’s a long way to go,” Newsome says, “but Cuba has taken some steps to make investment more attractive.”