Investors Shouldn't Fear Latin America's Protests

From Chile in the south to Mexico in the north, Latin America is being convulsed by popular protests.

Most investors won’t welcome the sight of tens of thousands of angry protestors taking to the streets in the region’s capital cities. After all it reinforces the stereotype of Latin America being a volatile region with the political instability that investors fear so much. But that's a mistake. Investors should hold their nerve and see these protests for what they are.

Latin America’s Protests

In Venezuela protests have been rumbling on for more than a year. Originally they were focused on student education but since then they’ve grown to encompass anger over economic mismanagement and political control.

In Peru the army has been sent to the streets to respond to anti mining demonstrators. The military personal are active in three different provinces in southern Peru, with a state of emergency being declared in Arequipa – the country’s second city.

In Ecuador marches were arranged across a number of cities to protest against a new inheritance tax law. Here, with a visit of the Pope imminent, the government is taking a softer approach and trying to engage the opposition in debate.

We’ve also seen large-scale protests in Mexico, Chile, Honduras, Nicaragua and Brazil.

Why investors shouldn’t worry

In each case the cause is slightly different but there’s no doubt that there are region-wide common denominators that are behind the protests.

The first thing to recognise is that many – although not all – of these protests have got a point. Take corruption, which is the cause of many protestors’ ire, for example. If you look at Transparency International’s Corruption Perception Index, most Latin American countries do pretty poorly. Another cause for protest is education. Again the protestors are on to something as Latin American countries don’t provide a good system of education for poor people.

The fact that many Latin American countries have these problems clearly isn’t a good thing. But the fact that citizens are now holding the political elite to account about it, is. An interesting feature of these protests is the heavy involvement of social media. Social media has empowered lots of Latin American citizens and is being used to organise the protests and to communicate a different narrative to the one that government may be pushing on traditional media.

"The protests also reflect positive changes in Latin American society…"

Another, more fundamental, positive element of these marches is the fact that Latin Americans feel they can protest so freely. In the 1980s most Latin American countries were dictatorships, where any form of dissent was brutally suppressed. That legacy made many Latin Americans understandably cautious about taking to the streets to protest. Now, a generation later, that fear is gone. It’s a sign of the strength of Latin American democracies that its citizens know they can peacefully march against their government and hold their politicians to account.

The protests also reflect positive changes in Latin American society. Since 2000 economic growth lifted an extra 50 million people into Latin America’s middle class. That got lots of investors excited about consumer stocks but it also brought some indirect benefits. Having a bigger chunk of the population that is well educated, relatively wealthy and aspirational creates a more demanding electorate. And we’re starting to see the consequences of that now.

Investing through protests

 Of course not every single Latin American protest is a beacon of democracy. There are plenty of cases of where demonstrations against a mine or infrastructure project is actually organised by local crime gangs that don’t want development in their area. Or there are other protests that are fuelled by misinformation and rumours – for example the protestors that thought a hydroelectric damn would electrify all the water.

Either way, the fact is that nowadays, in this climate of protest, any infrastructure, mining or energy firm looking to execute a project in Latin America needs to make sure it builds great relations with local communities and has rock solid environmental planning. Massive projects, such as the $5billion Conga copper mine in Peru, have been shelved because of a failure to manage local opposition. So before buying shares of a Latin America-focused firm we need to understand where its operations are, who is opposing it, and what strategy does it have to get the locals onside.

Latin America’s age of protest is, on the whole, a good thing. It shows that democracies are maturing and citizens are holding politicians and institutions to account. So it definitely doesn’t make me any less bullish on the region. However, it’s a reminder that a firm’s ability to build maintain good relations with local communities can make or break a project.