US investment drive to take on China in Latin America

US investment drive to take on China in Latin America

Initiative will fund infrastructure in effort to compete with Beijing’s growing influence in region

The US hopes to win back ground lost to China in Latin America with an ambitious new initiative to fund infrastructure.

Foreign investment in Latin America was long dominated by the US and Europe, but for the past 15 years Chinese policy banks have funnelled more than $137bn of investment to governments and state corporations in the region, according to a database compiled by the Inter-American Dialogue in Washington.

At the same time, China has become the biggest trading partner for Brazil, Chile and Peru and is close to achieving that status in Argentina. During the pandemic, a wave of Chinese donations of medical equipment and supplies, followed by early vaccine sales, led to talk of Beijing’s “mask diplomacy”.

US president Joe Biden’s deputy national security adviser said Washington was not asking the region to choose between the US and China. “We’re there to compete because we do think we have a better product,” Daleep Singh told the Financial Times after touring Colombia, Panama and Ecuador to outline the initiative.

The “product” Singh is promoting is Build Back Better World, an attempt to use development finance from US bodies such as the ExIm Bank, the US Agency for International Development and the US International Development Finance Corporation (DFC) to help unlock far bigger sums from the private sector, in co-ordination with other G7 countries.

Areas targeted included renewable energy, digital technology, medical equipment and lending to smaller businesses led by women, Singh said. “We decided to make our first listening tour to Latin America . . . given the proximity to the United States and our core interest there.” Other regions will follow.

Panama’s foreign minister Erika Mouynes said the US initiative was a welcome and positive development as the region worked to come out of the coronavirus-induced downturn. “We would love to have more investment from anybody,” she told the FT.

Under Panama’s current administration, “the US is frankly the first one to propose an initiative [and] hopefully we’ll see some key components actually materialise”. Panama had proposed investments in clean water and broadband access in rural areas as well as finance for small and medium-sized businesses led by women, but specific sums were not discussed, she added.

Margaret Myers, a China-Latin American expert at the Inter-American Dialogue, questioned how much impact the US initiative would make. “If this is supposed to be a response to [China’s] Belt and Road Initiative, BRI is not just about infrastructure,” she said. “It’s also focused on a lot of other areas, such as boosting trade, widespread public diplomacy . . . and financial connectivity.”

Early Chinese investment and trade in Latin America focused on traditional areas such as raw materials, but more recent deals have concentrated on higher-value sectors such as smartphones, 5G infrastructure, surveillance technology, cloud computing, renewable energy and electricity transmission, said Myers. “It’s very hard to compete with China at this juncture . . . China is already so well established in many of these highly competitive sectors.”

Two deals by Chinese companies at the end of 2019 highlighted the trend. China Yangtze Power paid $3.6bn for Peru’s biggest electricity company, while State Grid of China bought Chile’s third-biggest electricity distributor Chilquinta Energia for $3bn.

Christopher Sabatini, senior fellow for Latin America at Chatham House, said Build Back Better World was a welcome change from Trump-era policies of “worrying about China and not offering alternatives”.

But he questioned how much new money would be available. “The US bilateral development budget has been cut so much,” he said. “Where will the money come from? . . . It’s not clear how this will leverage the private sector, especially when Latin America’s growth potential is stagnating or declining.” 

The combined health and economic impact of the coronavirus pandemic in Latin America was among the worst in the world. The region’s economies shrank 7 per cent last year. Although they have bounced back this year, growth in 2022 will slow sharply, according to IMF forecasts.

Singh declined to specify how much new funding would be available, saying only that the Biden administration’s ambition was “to mobilise hundreds of billions of dollars towards this effort” globally. Among the ideas under consideration was increasing the ability of the US government to make equity investments in projects.

“There is no Build Back Better for Latin America and the Caribbean without the funding and the expertise to implement these infrastructure projects,” said one official at an international financial institution. “The problem is that the US government doesn’t do financing. The DFC can be a wonderful tool . . . but right now it doesn’t have the money nor the experience to really have an impact on these types of projects.”

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