What does Covid-19 mean for Latin America?

May 2020

The Covid-19 pandemic has created an interlinked public health and economic crisis in Latin America – the severe impacts of which will be felt both by countries and companies for many years to come. In addition to long-term implications for the political trajectories of many major economies in the region, the crisis will strain the relationship of industry and governments. Critical Resource’s latest research examines the long-term social, economic and political impacts of this ongoing crisis on the region, as well as the new risks and opportunities this may create for natural resource companies.

By Caitlin Purdy, Associate

Cases continue to rise across the continent

While the novel coronavirus was slow to arrive in Latin America, cases continue to rise in many jurisdictions across the continent. Notably, Brazil – home to half of the continent’s population – has emerged as the second largest global hotspot, with over 360,000 cases and 22,000 deaths as of 26 May 2020, while cases in Chile are increasing by a rate of 5,000 per day. The economic impacts of the Covid-19 crisis are projected to be particularly acute in the region compared to other emerging markets and developing economic. According to UN estimates, regional GDP is anticipated to contract by 5% in 2020, regional unemployment is forecast to hit 12% and an additional 30 million people will fall into poverty.

The full white paper, which explores these and country-specific issues in more detail, can be accessed here.

A brief summary of our key findings is outlined below:

As economies fall apart, it is unclear if the centre right will be able to hold its ground in the next wave of elections
The centre-right governments elected in the mid-2010s were languishing under pressure from irate electorates in late 2019. Now, enjoying considerable boosts in approval ratings, several looked poised for potential comebacks. But if Covid-19 prevents the centre-right’s second coming, it is unclear who will capitalise on the electorates’ discontent – and whether the region will see a second “pink tide” (turn to the left) or a proliferation of populist leaders of varying ideological hues à la Brazil’s Bolsonaro or Mexico’s AMLO.
Governments will be hungry for hard cash but may lack the political capital and bandwidth to get natural resource projects over the line
Governments under fiscal pressure may launch a political drive to attract investment and push projects into production. This increased support at the highest levels of government is likely to be extremely valuable for the sector. However, this will not necessarily mean smooth sailing for companies. Distracted and over-burdened central governments may struggle to help projects over stakeholder and regulatory hurdles. Moreover, they may also try to squeeze more revenues out of companies and into state coffers as economic malaise sets in.

Companies will not be able to buy community support – even in a major downturn
Natural resource projects in Latin America continue to face high levels of stakeholder opposition. Previous experience suggests that a greater need for jobs and investment may not necessarily ameliorate local conflict. Moreover, a deteriorating economic context is likely to raise stakeholders’ expectations of or dependence on companies, increasing license-to-operate risks.

Security dynamics will evolve as criminal groups shift their behaviour to make up for disruptions to key revenue streams, creating new risks for some companies
The Covid-19 crisis has disrupted criminal groups’ core business activities and as they seek new revenue streams, large-scale mining may be exposed to new security risks. Moreover, in many countries, notably Mexico and Colombia, criminal groups have stepped up to provide local crisis relief, weakening the state’s already tenuous authority in remote communities.