How the world is changing – foreign direct investments in the Americas

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IBA Conference 2020 – Virtually Together

Wednesday 11 November

Lead Committee

Closely Held and Growing Business Enterprises Committee

Supporting Committees

Antitrust Section
Latin American Regional Forum
North America Regional Forum


Luciana Tornovsky  Demarest, São Paulo
Harvey Cohen  Dinsmore & Shohl, Cincinnati, Ohio


Juan Daniel Rodriguez Cardoso  Rodriguez Rueda, Mexico City
Patricia Silberman  Carey y Cía, Santiago
Alexandra Orbezo  Rebaza Alcazar & De Las Casas, Lima
Martin Kovnats  Aird & Berlis, Ontario, Canada
Catalina Santos  Brigard & Urrutia, Bogota


Mercedes Rodriguez Giavarini– Mitrani
Caballero & Ruiz Moreno, Buenos Aires

In an informative Q&A interactive session with a panel of highly experienced and well-informed Co-Chairs and speakers, there was a discussion on how foreign direct investment (FDI) is developing in the Americas. General observations across all members of the panel were the negative effects that the coronavirus (Covid-19) pandemic has had in foreign investment overall.

Evolution of foreign direct investment (2019 versus 2020)

With reference to Latin America in general, Alexandra Orbezo noted that, according to the United Nations Trade and Development Conference, 2018 and 2019 recorded the largest amounts of FDI in the region. However, due to the coronavirus pandemic, 2020 is likely to show a 40 to 55 per cent reduction in foreign investment, mainly due to the strong dependence of the region on investment in extracting activities (oil and mining). Orbezo further indicated that, given that China has reopened its economy and invests highly in the mining sector in Peru, it is likely that activity will increase as of the beginning of June/July 2021, specifically in connection with the extraction of precious metals.

Martin Kovnats stated that almost 70 per cent of Canada’s business comes from the United States and foreign investment has been significantly reduced in 2020. Depending on how quickly Joe Biden’s government in the US reacts to the pandemic, how fast a vaccine is manufactured against the virus and how people react to such vaccine, foreign investment in Canada may be affected.

Catalina Santos noted that 2019 was a very dynamic year for Colombia, with a vast number of deals and a roughly 20 per cent increase of foreign investment (the highest recorded amount since 2018), particularly in the oil and mining industries, infrastructure, health, insurance, retail and manufacturing sectors, resulting in an increasing acquisition power for the middle class. However, during the coronavirus pandemic, a dramatic reduction in foreign investment is being recorded in 2020 in both Brazil and Colombia, and certain sectors, such as entertainment, tourism, automotive and oil and mining sectors were affected, as opposed to sectors relating to technology, pharmaceuticals, online education and e-commerce which are clear winners.

Patricia Silberman and Juan Daniel Rodriguez Cardoso explained that, despite Covid-19 and social unrest, Chile and Mexico have continued to show good FDI levels. In Chile, there is a steady M&A activity with a focus on the technology, utilities and infrastructure sectors, which attract the interest of foreign investors, especially from Asia. According to Rodriguez Cardoso, the increase of investment in Mexico is the result of reinvestment by existing companies but does not involve new capital.

Effects of new legislation on foreign direct investment

Orbezo noted that the pandemic in Latin America has brought political and social unrest, evidencing structural weakness in the governments’ abilities to manage the situation and, therefore, deepening the recession. Many Latin American governments resorted to protectionism and populistic measures, making it more challenging for the region to attract foreign investment; heavier screening processes were put in place, particularly in the national security, health care and education sectors.

Harvey Cohen indicated that new legislation in the US brought changes on export controls, which has impacted due diligence processes in M&A transactions and Kovnats further noted that, in Canada, due diligence is also affected by several data protection and data privacy rules that vary around the country.

Silberman, however, stated that the principle of equal treatment between local and foreign investors in Chile has been maintained as a main pillar of the Chilean legal system. Luciana Tornovsky then noted that in Brazil, legislation has become more flexible to attract foreign investors, specifically in the capital markets.

The members of the panel also discussed the effects of the legalisation of marijuana as a new player in the market for foreign investment. Although certain countries still struggle to pass legislation and production/consumption of cannabis is still illegal (such as in the US), it is clear that a new market could develop.

Consequences of the green movement in foreign direct investment

Silberman and Santos explained that social unrest has not materially affected foreign investment in Chile and Colombia. Investments are still high in Chile and there have been certain factors that helped maintain foreign investment levels (ie, Chile is still ranked first in the competitiveness rate index). Also, there is a developing plan on making Chile a global centre for green energy power to attract foreign investors. On the other hand, in Colombia, the green movement could affect FDI in the oil and mining industry as Colombia is a party to the United Nations Declaration on the Rights of Indigenous Peoples that protects indigenous communities and requires companies to consult with these communities on the impact investments, which creates a great degree of uncertainty and scepticism.

Tornovsky commented that social unrest in Brazil has truly affected investors and increased uncertainty levels. Cohen and Rodriguez Cardoso further observed that investment related to the green movement is expected to increase in Mexico and the US. The North American Free Trade Agreement (NAFTA) provides Mexico with clear rules on eco-treatment, but populist measures could affect investment.

M&A due diligence

The panellists concluded that during the Covid-19 pandemic on-site due diligence decreased. In addition, proper due diligence now requires reviewing compliance with governmental directives on Covid-19 (such as remote work, suspension of labour relations and testing requirements). In general, transactions required longer timeframes because virtual due diligence takes longer, the parties try to avoid regulatory restrictions and governmental approvals and many ongoing transactions had to be re-negotiated as a result of the crisis. In Colombia, for example, timing for closing has slowed down because metrics for pricing are currently distorted and companies’ financial statements do not reflect the true impact of the coronavirus pandemic.

Force majeure and MAC clauses

The members of the panel commented on contract parties’ discussions and disputes around force majeure and material adverse change (MAC) clauses during contractual negotiations following the breakout of the pandemic.

Representations and warranties’ insurance

Silberman and Tornovsky discussed the application of representations and warranties (R&W) insurance in M&A transactions in Brazil and Chile, concluding that R&W insurance is still limited due to high costs, tax liabilities and limited coverage. Kovnats discussed the use of escrow accounts as an alternative and cost implications.

Legal fees and cost containment

Finally, Kovnats and Cohen noted that there has been an increase of costs control on legal fees in transactions closed in Canada and the US.

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