Softbank Group Partners with Inter-American Development Bank to Co-Invest in LatAm Startups, Uber Revitalizes Operations in Brazil’s Favelas, 85 Firm Firms Apply to Operate Under Mexico’s Recently Enacted Fintech Law, and more from LatAm...

Other featured stories include: President Andres Manuel Lopez Obrador Announces Upcoming Series of Infrastructure Projects Worth Billions to Reactivate Mexican Economy, Delta Airlines to Buy a 20% Stake in Latam Airlines, Nestlé Health Science Accelerates Innovation in Brazil with Beyond Food Initiative, and Softbank Announces Hiring for 100 Employees in Recently Opened Miami Office.

Softbank Group Partners with Inter-American Development Bank to Co-Invest in LatAm Startups and Names Ralf Wenzel as Chief Executive at its Latin American Tech Hub

Softbank Group has partnered with Inter-American Development Bank to co-invest in Latin American startups.

In a statement, both parties affirmed that they strive to share regional and technical knowledge and co-invest in growth and late-stage startups within the region.

Irene Arias, Chief Executive of the IDB’s innovation laboratory IDB Lab, stated that Latin America has reached an “inflection point”, with continuous entry of global players in the region’s markets (Reuters).

IDB will help advise Softbank on corporate governance, environmental and social practices.

Marcelo Claure, CEO of Softbank Group International, said in the statement that the firm sees a “more vibrant ecosystem for entrepreneurship across Latin America and the Caribbean” (Reuters).

The group recently launched a Tech Hub to help Softbank-backed companies in other regions expand in Latin America via joint ventures and strategic partnerships. As reported by Euro News, Softbank said they wanted to create 50 partnerships in five years, helping companies in the group’s Vision Fund expand in the region.

Earlier this week, the group named entrepreneur Ralf Wenzel as Chief Executive at its Latin American Tech Hub. Ralf Wenzel is founder of foodpanda, a food delivery company, and Skrill, an e-wallet company in Europe.

Uber Revitalizes Operations in Brazil’s Favelas with Heliópolis Project

Uber will restart operations in Heliópolis, one of Brazil’s favelas.

In number of rides, São Paulo is Uber Technologies Inc.’s biggest market worldwide.

Poor neighborhoods and suburbs where there are limited and overcrowded transportation options and car ownership rates are low represent a big opportunity.

“Favelas are a giant market, and in Brazil alone $20 billion USD in revenue circles inside these communities every year,” said Pedro Sampaio, Uber’s social impact manager in Brazil and head of the Heliópolis roject (Forbes).

While there is a potentially massive market, these neighborhoods present operational challenges for a company like Uber that has past experience with driver and passenger safety problems.

In 2016, just two years after the company entered Brazil, a wave of attacks against drivers resulted in at least 16 deaths. Uber responded by blocking off favelas as a pickup/dropoff option on its app, which created a public perception that the company was discriminating against those living and working in the favelas.

More than 10 million Brazilians live in favelas, and the majority of which have low-paying jobs as workers in factories, small shops, or services such as housecleaning. In Heliópolis, hundreds of locals fill the streets every morning for public buses and subways.

The pilot is a partnership between Uber and United Central of Favelas, or CUFA, a favela economic development organization.

As reported by Forbes,

“Uber executives, working with local leaders and residents, mapped Heliópolis and identified eight virtual pickup points, including a church and a public school, and a physical spot next to the fruit stand that’s outfitted with a bench and a Wi-Fi connection—all deemed safer for drivers and customers.”

Drivers said they feel safer when driving to designated pickup spots.

“I don’t go to certain areas of the favela,” stated Cezar Nascimento dos Santos, who lives in Heliópolis and has been an Uber driver for two years.

Posters have been plastered around the neighborhood with the slogan “Tem Uber” (“There’s an Uber”) accompanied by a “Made in Heliópolis” logo. Local businesses were responsible for developing the Heliópolis-targeted marketing campaign, as it was advised that greater community involvement would bolster trust and educate residents about the company and its business.

“This wasn’t only a mobility project, but a social inclusion one. We also had an ‘Uber Expo’ in the favela with partners such as car rental companies to help attract potential drivers.” The company has also sponsored soccer and arts events in the neighborhood,” Uber’s Sampaio told Forbes.

85 Firms Apply to Operate Under Mexico’s Recently Enacted Fintech Law

The National Banking and Securities Commission (CNBV) has received 85 applications from companies looking to operate under Mexico’s new fintech law.

60 of the 85 companies (over 70%) that applied are electronic payment processors. 25 of them (accounting for roughly 31%) are collective financing companies.

The legislation, passed in March 2018, was enacted as part of President López Obrador’s efforts to increase financial inclusion throughout the country. With this law, the Mexican government hopes to reduce the amount of cash in circulation to diminish money laundering and corruption, and also bring more people into the formal economy.

Last Thursday, CNBV said that fintech companies that have not yet applied would no longer be able to do business in Mexico. The commission also announced that sanctions would be imposed against those that do.

A notable corporation that has been affected is PayPal, which decided against seeking authorization as an electronic payment fund, and instead insists on operating as a payment aggregator service. To comply with the legislation, which required financial services to register by last Wednesday, PayPal transferred balances in users’ accounts to their bank accounts.

According to Mexico News Daily, an estimated 44% of the adult population in Mexico do not own financial products. Many are deterred by the country’s past scandals and high banking fees, while others have opted out of the formal system to avoid paying taxes.

Finance Secretary Arturo Herrera has led the government’s initiative to increase financial inclusion, which includes a transition to digital wallets and direct deposit to disburse welfare benefits. He expects fintechs to create increased competition within the money transfer industry; therefore reducing remittance costs for Mexicans sending money home from abroad, which would benefit those who rely on international wire transfers.

President Andres Manuel Lopez Obrador Announces Upcoming Series of Infrastructure Projects Worth Billions to Reactivate Mexican Economy

This Wednesday, President Andres Manuel Lopez Obrador said Mexico will soon unveil a set of major infrastructure projects drawn up by the private sector to boost the economy.

Lopez Obrador said roughly 1,600 projects were being considered that would “reactivate” the country. As reported by Reuters, the investment package comprises projects worth more than $400 billion over the course of the 2018-2024 administration.

“This is really important, because it would help us to spur economic growth,”  Lopez Obrador said.

Speaking at a news conference, the President praised the private sector’s role in creating the infrastructure agenda.

“They made the proposal, they are financing the studies,” AMLO said, and stating that the plans would be presented to the public soon. “We’re seeing … what can be financed with public funds and what with private investment, how accords or associations between the public and private sector can be done” (Reuters).

Delta Airlines to Buy a 20% Stake in Latam Airlines

Last week, Delta Air Lines said the company would buy a 20% stake in Chilean airline Latam Airlines, likely becoming the main shareholder in Latin America’s largest air carrier. Latam Airlines is in the Oneworld alliance with American Airlines and British Airways, which it will now leave following the announcement by Delta.

Photo Courtesy of Wall Street Journal

                                              Photo Courtesy of Wall Street Journal

This investment joins a consortium of equity-backed partnerships funded by Delta in recent years, including 49% ownership of both Aeromexico and U.K.-based Virgin Atlantic, stakes in China Eastern and Korean Air, and joint ventures with Virgin Australia, Canada’s WestJet and Air France-KLM and Alitalia.

Collaboration between airlines in various global regions is typical in the form of codeshares and alliances. Delta’s investment seems to be part of a more ambitious plan to break away from alliances and instead favor a more complex model of international integration.

The Wall Street Journal reports that Delta will pay $1.9 billion for the Latam shares—78% above market value—using cash and new debt, and invest $350 million in the partnership.

This investment joins a consortium of equity-backed partnerships funded by Delta in recent years, including 49% ownership of both Aeromexico and U.K.-based Virgin Atlantic, stakes in China Eastern and Korean Air, and joint ventures with Virgin Australia, Canada’s WestJet and Air France-KLM and Alitalia.

Collaboration between airlines in various global regions is typical in the form of codeshares and alliances. Delta’s investment seems to be part of a more ambitious plan to break away from alliances and instead favor a more complex model of international integration.

The Wall Street Journal reports that Delta will pay $1.9 billion for the Latam shares—78% above market value—using cash and new debt, and invest $350 million in the partnership.

Photo Courtesy of Wall Street Journal

                                                 Photo Courtesy of Wall Street Journal

This premium for a minority stake in the carrier is particularly surprising, considering Latam’s anchor shareholders from the Cueto family seem quite eager to leave the company.  Enrique Cueto recently announced that he will be stepping down as Chief Executive after 25 years.

“Delta is quitting the purely local market in South America by selling its 8% stake in GOL, a Brazilian short-haul carrier. Latam has a greater presence across the continent and, crucially, it offers long-haul flights to the U.S.—a market where Delta trails its U.S. rivals by a big margin. Delta’s traffic and money also should help to reinvigorate Latam’s flagging hubs in the Andes,” The Wall Street Journal reports.

Nestlé Health Science Accelerates Innovation in Brazil with Beyond Food Initiative

Nestlé has launched the Beyond Food initiative in efforts of accelerating its corporate innovation projects with startups in its health sciences division in Brazil. The program, led in partnership with corporate innovation firms StartSe and Innoscience, is the first of its kind.  

The initiative aims to secure contracts with up to three startups within the next year to help the company improve targeted business areas and develop new offerings.

The business execution pillar of the program is seeking startups that are developing innovative propositions in sectors such as stock management and distribution and logistics efficiency. The outpatients area will target startups that are innovating the field of robotics to support the nutrition of individuals who are not hospitalized. These advancements would include, for example, Internet of Things (IoT) systems that track risk or level of malnourishment.

Nestlé also seeks to find startups developing technologies that support the prediction of prevention of health and nutritional conditions, such as biometric systems to be used in wearables. Additionally, they are interested in virtual, mixed or augmented reality propositions for patient engagement.

As reported by ZDNet, up to 15 startups will be chosen for a series of preliminary conversations with company executives. Five ventures will take part in a pitch day in December when the three finalists will be chosen to receive funding from the company.

According to Monica Meale, the Latin America head at Nestlé Health Science, this investment demonstrates the company’s commitment to the Brazilian market. In August, Nestlé announced their plan to invest 1 billion Reais (~$250 million USD) in São Paulo over the next three years.

“Brazil has been a protagonist in various areas of the company and we also seek leadership in the health segment, which is why this market is the first to launch a business acceleration program with e-health startups,” Meale said (ZDNet).

SoftBank Announces Hiring for 100 Employees in Recently Opened Miami Office

Marcelo Claure, CEO of SoftBank Group International, announced the group’s recently opened office in Miami is in hiring mode, with the goal of reaching at least 100 employees.

“We took a floor, and we’re already full… So we’re going to probably need a second or even third floor,” Claure said in a recent interview (Miami Herald).

The group’s plan is to hire investment experts and tech-minded professionals who will help manage SoftBank’s investments in Latin America. Claure said a “significant portion” of the fund has already been deployed.

“There are incredible entrepreneurs there with incredible potential… But it’s lacking in capital and ambition — and I don’t blame them for the ambition part. If there’s no capital, you cannot be ambitious. I am positively surprised by the amount of opportunity in Latin America,” he said.

The Brickell office in Miami is designed to see these investments take off. Additionally, the group hopes to expand the worldwide businesses in which SoftBank has already invested, including Uber and WeWork.

Fernando de Noronha: An Example of a Green Future or the Next Overdeveloped Tourist Destination?

Noronha, an island off the coast of Recife on the Brazilian mainland, wants to show the world a way to a green future, despite Bolsonaro’s (and big business’) desire to exploit the island’s natural resources and transform it into the next Conzumel.

Photo Courtesy of TripAdvisor

Photo Courtesy of TripAdvisor

For awhile, the environmentalist-approach appeared to be triumphant. Since the beginning of the year, the island has banned disposable plastic, imposed mandatory recycling and launched a program to neutralize carbon emissions by 2030.

As reported by The Washington Post, tourism has nearly doubled since 2012, but the number of visitors is limited by law. Foreigners are charged more than $50 USD to use the island’s beaches while strictly enforced environmental regulations, have impeded development.

The island received 103,000 visitors last year, generating nearly $9 million USD in taxes.

UNESCO has declared Noronha a World Heritage Site, citing its “indescribable beauty,” as well as its biodiversity and endangered species. TripAdvisor has named Baia do Sancho the world’s most beautiful beach.

“The world is turning a page. The era of dirty energy is over, ” says Rocha, the island’s administrator.

On the opposing side of the argument is President Jair Bolsonaro, who has promised to cut through environmental red tape and promote development. This summer, Bolsonaro made a Facebook post expressing his disapproval of these beach fees, calling it “robbery”,  and insisting the fees explain why “there is almost no tourism in Brazil.”

Bolsonaro Tweeted:

“Brazil is the No. 1 country in the world in natural beauty, but one of the last in tourism revenue…. Fernando de Noronha is an example of how not to do tourism.”

The president is already implementing changes. Following his public denunciation on Twitter, he sent Environment Minister Ricardo Salles to the island to assess whether some of the tourist fees should be waived.

According to The Washington Post,

“Salles met with business leaders, lifted a ban on sardine fishing, and replaced the head of the island environmental agency with a native who the business community hopes will ease restrictions.”

In Noronha, where environmentalists have previously enjoyed a substantial influence, many activists fear that the President could threaten projects decades in the planning, while local officials worry that speaking out could make them the president’s next target.

How Mexico’s Monopolies Coexist with the Country’s Sprawling Informal Economy

In addition to fostering the creation of a start-up scene, Guadalajara is building off it’s decades of experience in industrial manufacturing. Concurrently, entrepreneurs and executives are looking for new ways to add value and succeed in new markets.

According to Forbes, Guadalajara’s city center is now surrounded by new developments, cranes, and construction sites. The presence of relatively well-paid professionals has established a growing consumer class and helped turn Guadalajara into one of Mexico’s new craft beer hubs.

Although Mexico is the world’s number one beer exporter, this success is “largely based around the anti-competitive practices of a duopoly that whose founders’ established a burly bouncer’s stranglehold on Mexico’s beer market before selling their empires to global beer giants Heineken and Anheuser-Busch Inbev” (Forbes).

For years, Grupo Modelo and Cuauhtemoc (the producers of Corona and DosEquis) signed exclusive contracts with vendors, in addition to restricting independent producers from selling their beer in the majority of stores, bars and restaurants.

“The companies that produce Corona and DosEquis control 99% of Mexico’s beer market. The country is just starting to experience a new boom of craft beer but even observers with a ‘glass half-full’ mentality have to admit that the glass is filled with big brand beer.”

Mexico is lacking is successful mid-sized companies. The corporate giants can’t create middle-class employment for the masses, and the majority of Mexicans seek employment in the country’s sprawling informal economy.

“Over half of Mexico’s workforce is employed in the informal economy, an amorphous categorization that includes street vendors, house cleaners, taco stand operators, and a variety of other off-the-books individuals who receive cash salaries and don’t pay taxes.”

Meanwhile in the border city of Tijuana, a new group of gourmet restaurants have helped transform the city into a destination for foodies looking for some of the world’s best tacos.

Unfortunately, very few of the city’s residents can afford a meal at a sleek, new taqueria. Unlike Guadalajra, Tijuana has not produced a strong middle class.

“In the entire state of Baja California, 67% of residents earn between $1,222 and $6,110 a year. There are only 14,881 residents, less than 1% of the total population, who earn more than $12,220 a year.”

In Modern Mexico, giant industrial monopolies continue to coexist with a sprawling and (still mostly poor) informal economy. Across the country, the majority of people buy their snacks and beer produced by Mexico’s monopolies, but eat tacos from family run carts and other un-registered businesses.

“On one side of the spectrum you have the beer giants and on the other the informal taco stands. What’s absent is a real middle class.”

Interview: Why Astec Industries is Sharpening its Latin American Focus

US-headquartered Astec – which in the region has a factory in Brazil that manufactures products such as mobile asphalt plants and equipment for the mining and aggregates industries like conveyor belts and screens – is building a Latin America HQ in Chilean capital Santiago. From this base, officials will spearhead a new regional sales, after-sales and marketing strategy.

BNamericas spoke with Astec’s Latin America managing director, Carlos Fonseca, who, over the past year, has been building his Latin American team.

BNamericas: We understand that Astec is expanding its footprint.

Fonseca: Astec is undergoing a global expansion. Latin America is trialing the new business model that will be rolled out. The idea is that they will learn from our experience. The plan is to get closer to the customer, providing products, parts, service and support. Partnering up and helping them grow.

BNamericas: Why did you decide to establish your regional base in Chile?

Fonseca: This is a very stable economy. It’s a country that has free trade agreements with almost everywhere in the world and you have a knowledgeable workforce to choose from and we just felt it was a good place to set up operations.

BNamericas: You’re clearly looking for opportunities across the region, not just in Chile.

Fonseca: In fact, Chile is one of our smaller markets. If we were 100% focused on mining, Chile would be one of the bigger markets, but we’re not; we’re principally focused on infrastructure.

If you take kilometers of roads as your litmus test as to how big a market is, the largest market in Latin America is Brazil. Second is Mexico, third is Argentina, fourth is Colombia, fifth is Peru and sixth is Chile.

BNamericas: Where are you registering most sales?

Fonseca: Right now, most of our sales are in Mexico and Colombia. And Panama. Minera Panamá [which is developing the Cobre Panamá copper-gold-molybdenum project] is buying a lot of equipment from a distributor of ours. There’s a lot of requirements in terms of crushing and screening, for their internal processing of material, to build a tailings dam, a lot of their structures.

BNamericas: What targets and goals have you set?

Fonseca: We’ve set ourselves a long-distance goal to be No. 1 or No. 2 in terms of market share in all the markets that we can, in the countries where we operate. It’s a very lofty goal and we’re up against some steep competition but we feel that the company is focused and we have the right team to pull it off.

BNamericas: What work are you doing in terms of market research?

Fonseca: An important part of my organization is to develop the market knowledge and information to feed back to the US, to our different factories, as to how to localize products. For instance, some of the equipment that is made in the US is made for different dimensions and different requirements, and maybe they don’t translate that well to Latin America. We’ll go to the factory and we’ll say, ‘look, I really need a 3-5m tamper bar screed on a paver.’ In the US they use vibration on that screed, and no tamper. And we have to explain that’s what we need here.  Plus, in the US, asphalt plants are in the 200-500t/h range. In Latin America they’re not; they’re in the 80-120t/h range. So my team’s goal is to pick up that market knowledge and provide a business plan to the factory to make sure we have the products and services that are tailored to this market.

BNamericas: We understand that, to help potential customers who are looking to acquire equipment, you aim to partner with financing companies.

Fonseca: One of the differences between Latin America and the US and Canadian markets, for example, is that in Latin America a lot of customers require financing to buy our equipment. So, one of the things that we’re doing is trying to develop partnerships with regional and local financing entities to offer our customers solutions to purchase our own products. I am looking for options, for instance, for Paraguay, for Colombia, for Peru.

BNamericas: On the subject of Paraguay, the country is due to launch a tender next year to widen 170km of highway.

Fonseca: We just sold [in Paraguay] a Voyager 120, which is a 120t/h mobile asphalt plant built in Brazil. We sold it to a customer in Paraguay and they just showed it at a regional show. That has generated a lot of interest in that type of equipment and other equipment we have. We’re definitely seeing a lot of movement in Paraguay as a result of the tender.

BNamericas: Any other particularly interesting markets?

Fonseca: All markets are interesting for us. We have a great opportunity in Peru right now. We’re working in Ecuador. What is important to explain is that we’re still in the building phase right now. This initial year and maybe the next few months are about analyzing each market and figuring out whether we have the appropriate sales channel. The idea will likely be to consolidate and have fewer, but stronger, distributors.

BNamericas: So, to wrap up, you sound pretty upbeat on Latin America.

Fonseca: Very upbeat. We think the prospects are good. The good thing about Latin America is that it’s so varied that when one country’s up another country can be down. You have enough diversity that the whole region doesn’t drop at once.

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