Chinese investments in Latin American, the Caribbean must comply – AS/COA

Latin American and Caribbean governments and private sectors must seek to ensure that Chinese companies “abide by the same market and non-market requirements as their western counterparts” as a condition for investing in the region,” says a study titled “Energy and the Americas” published earlier this month by the Americas Society and the Council of the Americas (AS/COA).

The study which addresses, among other energy-related issues, Chinese oil and gas investments in the hemisphere, says that while Chinese investments in the hemisphere remain “relatively new” they represent the infusion into the region’s business culture of “alternative model” that ”potentially undermines the positive externalities that tend to come with western investment.”

AS and COA are two influential United States-based non-governmental organisations; the former promotes its mission as that of “increasing public awareness and appreciation of the diverse cultural heritage of the Americas and the importance of the Inter-American relationship” while the latter whose membership consists of scores of major multinational companies with a broad spectrum of investment interests including energy and mining says its members share a common commitment to economic and social development, open markets, the rule of law, and democracy throughout the Western Hemisphere.

While the study seeks, in the main, to advocate the adoption of energy policies in the hemisphere that will increase the likelihood of attracting financial investment from western companies it simultaneously sounds a note of concern over what it says are China’s moves towards making heavy investments in oil and gas exploration in the hemispheric energy sector “from Canada to Argentina and many nations between” given that “China has not exhibited an undue level of concern for western business practices on labour, corruption, social development and the environment.” The study says that while China does not demonstrate any “particular attraction” to corrupt regimes, neither has it shown a “particular reluctance to do business in countries ruled undemocratically or at variance with global norms on human rights and social development.”

And according to the study while China’s energy companies increasingly operate as private sector entities with private sector financial constraints, “they often have the full financial and political support of government institutions such as the Chinese Development Bank,” enabling them to “build a record of asset purchasing in the region.”

While the AS/COA case for Latin America and the Caribbean to enhance monitoring mechanisms for Chinese investments in the hemisphere is made primarily on the basis of what it says is the different “value set” which China brings to the region, the study also reflects concerns that accelerated Chinese investments in the energy sector in the region could impair western investment interests through competition. It says that it is concerned that host nations in the region may be inclined to favour those investors “who bring the most financial resources and demand little in the way of conditions” ahead of western countries requiring “certain codes of behavior from its companies operating abroad, such as transparency and anti-corruption.”.

Meanwhile, the study says that countries in the hemisphere seeking to maximize economic returns from their oil and other energy reserves have the best chance of doing do if they create the investment climate necessary to attract the significant external financial resources necessary to develop those reserves, “Energy production in the Americas is about more than which countries have the most natural resources,” the study says, pointing to what it says are “fundamental elements of a positive investment environment including “an independent regulator for oil and gas, a state company that competes with private companies on a level playing field, competitive royalty and tax regimes relative to risk and a stable regulatory regime that provides certainty for investors.”

The study alludes to a framework for oil and gas management developed by the Inter American Development Bank and which cites Colombia and Peru as two countries in the hemisphere that have turned around their oil and gas industries, realizing “substantial increases in investment and production” by reducing government control of the sector, introducing independent regulatory arrangements and opening up the sector to competition. It says that by contrast Venezuela, whose oil and gas resources dwarf those of Peru and Colombia has seen its production decline over the past decade.

AS/COA says that “the ability to attract investment from international oil companies is the barometer of successful fiscal and regulatory regimes,” adding that states in the hemisphere with development ambitions that revolve around the exploitation of oil and gas resources “must find a way to balance the role of the state with a competitive framework that attracts private investors.”

And according to the study, states in the hemisphere seeking to build economies based on the exploitation of their energy resources must also embrace “environmental and social protections” as ‘an essential component of sustainable oil and gas management. The study notes that dramatic increases in oil and gas exploration and production activity in the hemisphere has placed “the conservation of natural resources and the protection of indigenous and other social groups” on the front burner of social concerns, presenting a challenge for governments, companies and communities. “Policies alone aren’t enough. Governments must also monitor and enforce environmental and social requirements and, where necessary, work to keep conflicts from escalating into crises.”

AS/COA says that another challenge facing countries in the hemisphere seeking to build energy-based economies is that of promoting investment in renewable energy without either distorting the market or overwhelming their budgets. The study cites the pursuit on investment in renewable energy as important for countries in the hemisphere since it argues that “while conventional energy will undoubtedly form the largest share of energy mix for the foreseeable future, for reasons of energy security and environmental sustainability” countries “must pursue ways to increase the percentage of energy from renewable sources in their energy matrices.”

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