From issue: Natural Resource Extraction in Latin America (Winter 2013)

Policy Updates

A snapshot of policy trends and successes in the region.

In this issue:

Migration: Spain's Reverse Flows

Aurora García Ballesteros and Beatriz Cristina Jiménez Blasco

Latin America has historically played an important role in Spain’s migratory cycles—both as a sender and as a recipient.

Spanish political immigration to the hemisphere surged following the Spanish Civil War (1936–1939) and again after World War II, when Spaniards flocked to Latin America for economic reasons. The flow reversed with the late-1980s economic crises in Latin America. Between 1996 and 2010, Latin Americans in Spain—measured by those who obtained Spanish citizenship—grew nearly tenfold, from 263,190 to 2,459,089.

Now Europe’s economic crisis, which has acutely affected Spain, is causing the flows to shift again. According to data from Spain’s National Institute of Statistics (INE), for the first time in this century, more people are now leaving Spain than moving to it. Net migration in 2011 was reported at negative 50,090 people, with 507,740 leaving Spain and 457,650 arriving.

According to the population register of Spanish residents abroad (Padrón de Españoles Residentes en el Extranjero), 1,816,835 Spanish citizens were living overseas on January 1, 2012—a 6.7 percent increase (114,057 people) from 2011. Among them, 36.0 percent were born in Spain, 58.2 percent were born in their country of residence, and 5.1 percent were born elsewhere.

Nearly 57 percent of these overseas Spaniards (1,034,202 people) chose Latin America as their destination, evoking the “make it in the Americas” (“hacer las Américas”) phenomenon of the turn of the twentieth century. The top destinations—Argentina, Venezuela and Brazil—each count over 100,000 Spaniards. More than 50,000 Spaniards live in Mexico, Cuba, Uruguay, Chile, Colombia, Peru, and Ecuador.

At the same time, according to INE statistics, 14,795 Latin American citizens who were residing in Spain in 2011 returned to their home countries. Bolivia, followed by Brazil, Uruguay, Argentina, and Chile, saw the largest drop in the number of its nationals residing in Spain between 2008 and 2012. As an incentive to encourage migration of unemployed immigrants (unemployment was 39.1 percent in 2011), the Spanish government enacted the Voluntary Return Program (Plan de Retorno Voluntario) in September 2008. Under the program, unemployed non-European Union residents who want to return home have the right to receive half their unemployment benefit upon departure and half upon arrival in their home country. From 2008 to 2011, an estimated 15,000 people returned home under this program.

Migratory return to Latin America does not yet constitute a massive demographic movement. It is in large part directly related to the economic crisis in Spain, but also to improved economic and sociopolitical conditions in some Latin American countries. Although reports by the UN Economic Commission for Latin America and the Caribbean show that economic growth has slowed from 6.2 percent in 2010 to a projected 3.7 percent in 2012, the region’s outlook is positive.

That optimistic perception appears to be luring those who migrated to Spain and now wish to return, as well as Spaniards themselves. Figures compiled by the INE show that 15,764 Spaniards left their country to establish residence in Latin America in 2011. Ecuador, followed by Argentina, Venezuela and Brazil, are the top-four destinations.

Spanish-speaking America offers more than a strong economy to would-be Spanish immigrants, many of whom tend to have relatively high levels of education and professional qualifications. The additional attractions include: a common language, historical and cultural ties, and the continued presence of family and friends who emigrated in past generations and stayed as permanent residents.

With the crisis, Spain seems to be facing a new phase of migratory patterns. It is once again becoming a sending country, albeit still quite moderately, and Latin America is once again becoming a destination—both for those who left in search of greener pastures elsewhere, and for those seeking new opportunities commensurate with their education and training. Still, in today’s global economy, current migratory patterns are bound to change. This is especially true for Spanish–Latin American migration, where linguistic and cultural similarities allow people to more easily move back and forth based on the current economic, political and social situations.

Innovation: The Case of Chile

Conrad von Igel

How do you “start up” a start-up ecosystem? That was the question facing Chile in 2010, as the Corporación de Fomento de la Producción (Chilean Economic Development Agency—CORFO) and the Chilean Ministry of Economy looked for ways to encourage innovation and entrepreneurship.

Despite Chile’s strong economic performance, its business culture did not have a history of risk-taking. With this in mind, and with the help of international advisors from countries including the U.S. and Israel, Chile’s economic authorities launched an effort in January 2011 to create a tech entrepreneurial culture that would facilitate the growth of new and innovative companies. The heart of that culture was neither new infrastructure nor changes in corporate strategy: it revolved around entrepreneurs.

CORFO’s Start-Up Chile program provided six-month seed grants of $40,000 each to early-phase entrepreneurs from all over the world to attract the best ideas and, it was hoped, to generate the dynamic environment and cross-pollination characteristic of innovation hotspots like Silicon Valley.

Two years after its official launch, the program has made Chile a destination for entrepreneurs. As of December 2012, CORFO has invested $14 million in Start-Up Chile, with 888 entrepreneurs from 36 countries winning grants under the program, and more than 63,000 people participating in its workshops, conferences and meet-ups. It has also created a welcoming landscape for local start-ups, whether they participate directly in the program or not.

Entrepreneurship is now on the rise. The percentage of the population identifying as early-stage entrepreneurs grew by 7 percent from 2010 to 2011 (to 24 percent), according to a May 2012 Global Entrepreneurship Monitor report.

However, challenges remain as Chile seeks to implement the deep and lasting changes in the local economic environment and culture that innovative entrepreneurs need.

Start-Up Chile participants have raised more than $13 million since the program’s pilot run in September 2010. But with an underdeveloped venture capital industry, there’s still a shortage of money available for high-risk, high-potential start-ups.

CORFO has sought to address this by launching a variety of initiatives that encourage the formation of seed, venture capital and angel funds. Programs in these areas provide long-term loans and financing to investment funds that place their capital in innovative companies. The goal is to bridge the funding gap between start-ups’ riskiest initial phase and later stages, enabling promising entrepreneurs to access more traditional forms of financing such as private equity, bank loans or initial public offerings.

Another shortcoming is Chile’s low investment in research and development (R&D), which amounted to only 0.4 percent of GDP in 2010 according to the Ministry of Economy—far below the OECD average of 2.4 percent. CORFO is trying to plug the gap between science and industry with its International R&D Centers of Excellence program, which partners with successful R&D centers overseas.

Four such R&D centers, including Fraunhofer-Gesellschaft, Europe’s largest applied R&D organization, have already set up operations in Chile, and CORFO plans to attract up to 10 additional corporate and nonprofit R&D labs by 2014. The goal is for these centers to work with local universities and companies, implementing global best practices and stimulating
local innovations.

To further sweeten the pot, Chile instituted tax incentives in September aimed at encouraging greater corporate investment in R&D. The incentives, valid for both in-house and external R&D, offer a tax credit of 35 percent of the operating expenses and investments in fixed assets; the remaining 65 percent can be claimed as tax-deductible.

By improving conditions for entrepreneurship and innovation in Chile in a way that builds on the country’s strengths and promotes global collaboration, Chile hopes to improve its economic competitiveness.

The start-up ecosystem is clearly still in the early stages, but all the factors are in place for Chile to establish itself as an international hub of innovation and entrepreneurship in Latin America and the world over the next decade.

Aerospace: An Emerging Mexican Industry

Guy Taylor

Airplanes have many parts, from seatbelt buckles and massive brake pads to thousands of precision-shaped screws. In fact, Boeing, the U.S. aerospace behemoth, brags that its 747s are composed of 6 million individual pieces. Multiply that by 35,000—the number of new airplanes needed to meet world demand over the next 15 years—and the opportunities for aerospace parts suppliers are clear. Mexico has joined this list.

In Querétaro, Bombardier has made headlines with the recent expansion of its operations, where it is now conducting all of the structural work, as well as a portion of the assembly work on the Learjet 85, its business jet due out this year. But beyond the Canadian aerospace giant’s two-year-old assembly plant, factories that supply it and other assembly plants have grown across Mexico during the past five years.

In 2007, the nation boasted 150 aerospace factories, which exported roughly $2.7 billion worth of mainly low-level airplane parts up the supply chain to the U.S. and Canada. As of 2011, that number had soared to 260 factories—and is expected to reach 300 aerospace factories by the end of this year—making everything from electronic panels to partially assembled engines for shipment directly to the world’s leading original equipment manufacturers (OEMs), including Bombardier, Boeing and Honeywell.

Aerospace exports from Mexico reached $4.3 billion in 2011, a 40 percent increase from 2007. With President Enrique Peña Nieto vowing to do everything in his power to accelerate the sector’s potential, optimistic government forecasters now say exports may double again by 2015 and hit $12 billion by 2020.

Of course, skeptics wonder whether the nation’s crime rates will frighten away the outside investment that will be required to achieve such growth. The hard-knuckle drug war policies of former President Felipe Calderón saw some 47,000 Mexicans killed between 2007 and 2012. Still, foreign direct investment in the aerospace sector rose steadily during those years. It topped $1.2 billion in 2010 and is projected to hit $1.4 billion by 2015.

Mexico boasts three advantages that make such projections hard to dispute: a vast labor force willing to work for as low as $4 an hour, a growing number of university-educated engineers, and choice geographic proximity to both the more established aerospace markets and the buying power of the U.S., Canada and, increasingly, Brazil.

What began as an initial push into Mexico by U.S. manufacturers such as General Electric during the years following the 1994 enactment of the North American Free Trade Agreement has now emerged as one of the nation’s most vibrant sectors.

With 30,000 Mexicans now employed in aerospace factories across 16 of the nation’s 31 states, Mexican government investment in the sector is also growing—most measurably through the establishment of training schools and new university programs aimed at delivering a future crop of homegrown aerospace workers, plant managers and possibly even designers. The nation graduated more engineers per capita than Germany in 2012.

While the states of Querétaro and Baja California make up the majority of aerospace production in Mexico, recent developments in Chihuahua City deserve a closer look. Ford Motor Company opened a factory in 1983 and has since built nearly 7 million truck engines.

Thirty-six aerospace parts factories have opened in Chihuahua City over the past five years. A recent reporting trip there revealed that the vast majority of the factories are not Mexican-owned—which makes Mexico’s aerospace market unique in the hemisphere.

The downside of this is that the country may be used increasingly for its cheap labor by profit-hungry companies from more established markets. But the upside finds Mexico emerging as a new center of globalization. A variety of international companies have recently opened new plants in Chihuahua City: U.S.-based supplier Nordam, which makes everything from airplane windows to cockpit doors; France-based Manior Aerospace, which cuts shiny precision-shaped steel discs that end up on Boeing commercial jets; and Netherlands-based Fokker Technologies.

The arrival of other companies appears imminent. More than a dozen vast and neatly demarcated lots surround the recently opened factories east of downtown. Jesus Mesta Delgado, president of Index Chihuahua, the leading business group, explains that the long-term vision is to create a “one-stop city.”

So far it appears to be working. U.S.-based OEMs Cessna, Hawker Beechcraft, Textron, and Honeywell have all opened branches in Chihuahua City in the past six years. The situation raises the question of whether the sky may truly be the limit for Mexico’s aerospace sector.

Like what you're reading?

Subscribe to Americas Quarterly's free Week in Review newsletter and stay up-to-date on politics, business and culture in the Americas.