Middle Eastern investors begin doing business with the Latin American renewable energy sector

Summary: GCC countries are embarking on a new strategy that mimics the enormous success of China: using capital diplomacy to gain access to a larger share of the trade and investment pie of emerging markets. They have begun to seek out energy investment opportunities in Latin America.

Carlos St JamesAbout the AuthorCarlos St. James is an advisor to energy investors and developers in emerging markets since 2005 through Santiago & Sinclair, LLC. He co-founded the Middle East-Americas Energy Council in 2014; co-founded and presided over the Argentine Renewable Energies Chamber from 2005-2011; and has been a board member of the Latin American & Caribbean Council on Renewable Energy since 2010. He publishes the Latin American Energy Review in his free time.

He will speak at next year’s LAC-CORE Finance Summit on June 15-17, 2017 in Miami, Florida.

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A few decades ago Chinese leaders made the strategic decision to begin to invest and enhance business ties in emerging markets. Their primary early concern was to ensure basic resources for their own survival. Trade – in the case of Latin America – focused on commodities such as food and minerals. More recently they have begun the next stage by exporting capital and investing in other sectors such as energy — and providing financing for their wind and solar technology. Argentina is a clear case in point as discussed in this recent analysis.

Middle Eastern countries – but more specifically, the wealthier ones that make up the GCC – have taken note of China’s success and are now beginning to replicate it. Latin America needs to take note and reap the rewards by accessing its capital — as well as its technology; it has the added benefit of having closer cultural ties than it does with the Chinese.

Map of the six Gulf Cooperation Council (GCC) nations

GCC stands for Gulf Cooperation Council, a regional intergovernmental political and economic union that includes all Arab states in the Persian Gulf except Iraq: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE). (Click on maps and graphs to enlarge.) These six countries represent a third of the world’s proven oil reserves, a fifth of all natural gas reserves, and enormous amounts of capital. They have a longstanding and deep understanding of the energy sector, and it is well documented that each country has begun a shift away from dependence on fossil fuels, diversifying their economies while staying within energy.

As stated in our recent analysis of oil companies beginning to invest in renewables (see here), several European and GCC oil companies have joined forces to establish an investment fund to develop renewable energy technologies.

GCC and Latin America: current situation

GCC- Latin American trade. Source: IMF Direction of Trade Statistics

Today trade between the GCC and Latin America is small, with exports favoring Latin America (see red line in the graph). It is dominated by Brazilian exports of foods such as meat and cereals (and increasingly minerals) primarily to Saudi Arabia — with Argentina, Mexico and Chile also active in trade with all six GCC countries. This is exactly how trade with China began years ago. Brazil’s success is partly the result of the efforts of the very active Arab-Brazilian Chamber of Commerce, which shows the importance of industry associations in developing business ties.

Installed Renewable Energy Capacity in the GCC Countries. Source: Renewable Energy Market Analysis: the GCC region, IRENA, 2016.

In recent years GCC countries have begun a shift towards investment in renewable energy. While investment is still small (see chart), the pipeline of business within the region is enormous. Through 2014 the six countries had little more than 190 megawatts (MW) of installed renewable energy capacity, led by the UAE with investment in solar photovoltaic (PV) as well as an interesting fascination with concentrated solar power (CSP). CSP includes an energy storage component and thus reduces the intermittency shortcoming of PV. Each of the GCC countries now has installed solar PV, and Qatar has also been successful developing waste-to-energy technologies and installing power capacity.

But perhaps most significantly, a number of well-funded multinationals have emerged that are increasingly looking overseas for opportunities:

  • Mubadala, the Abu Dhabi, UAE government investment company, has invested $2 billion in Brazil into a conglomerate that includes port infrastructure and has established a beachhead in the country;
  • Abdul Latif Jameel Energy, a Saudi conglomerate, acquired the Spanish solar developer Fotowatio Renewable Ventures in 2015 and its approximately four-gigawatt pipeline of projects around the world as well as investments in Latin America such as the 65 MW La Jacinta solar farm in Uruguay, and with offices in Mexico and Brazil;
  • ACWA Power, a Saudi-based project developer and investor that already has a significant overseas presence and recently won a bid for a solar PV project in UAE that for a while was the world’s lowest price on a per-megawatt basis;
  • The Masdar Initiative, a UAE-based researcher and investor, built Masdar City outside of Abu Dhabi and has made significant international investment in renewables across Africa; in Spain it has 120 MWs of solar (CSP) capacity; it also owns the largest offshore wind farm in world (630 MW) in the UK; and a variety of small projects in the Pacific Islands;
  • Qatar Solar Energy, a solar panel manufacturer that already exports actively into Asia and is looking to break into Latin America.

How can Latin American businesses tap into this opportunity?

Santiago & Sinclair, LLC is active in the GCC countries providing guidance to the public and private sector on renewable energy matters. I personally have been invited to speak at numerous energy conferences in Bahrain, the UAE and Qatar in the last few years, reflecting the region’s increasing interest in Latin America, which made me realize there was a need for an organization to begin to facilitate energy investment flows between the regions.

The outcome was the establishment of the Middle East-Americas Energy Council (MEAMEC), a non-profit business organization that works to facilitate energy investment and technology transfer essentially between the GCC and Latin America. (Tip of the hat to a great mentor and friend, ex-U.S. Secretary of Energy Bill Richardson, a fellow co-founder of MEAMEC and who helped open many doors for the organization.)

The cultural ties and similarities between the two regions are important. Arabs and Latins are both “high context” communication style cultures and have similar business and interpersonal etiquette. Both prefer to establish personal ties before doing business, and MEAMEC works to facilitate this: a trickle of initial investment over time can become a raging river of capital flows and opportunities once relationships have been established. Trade missions, trips and relations need to be set up. And on a more practical level, double taxation agreements need to be signed between countries as this remains a disincentive for investment.

The sooner we begin the better for all. Please contact us if you would like more information on MEAMEC or otherwise to begin reaching out to new investors and technology.

Photo: the Bahrain World Trade Center, located in Manama, is a 50-floor building built in 2008 and the first skyscraper in the world to incorporate wind turbines into its design.

© Latin American Energy Review 2016

About the AuthorCarlos St. James is the Managing Director of Santiago & Sinclair, LLC, a US-based financial advisory firm focused on renewables in emerging markets. Carlos co-founded the Argentine Renewable Energies Chamber (CADER, by its initials in Spanish) and was its first President until 2011; is a board member and was elected the first President of the Latin American & Caribbean Council on Renewable Energy (LAC-CORE); founded and is chairman of the Middle East-Americas Energy Council (MEAMEC); and founder and publisher of The Latin American Energy Review. His private sector background is focused primarily on finance and bringing together stakeholders so that deals get done. He advises governments on renewable energy policy, counsels private equity firms seeking to enter the region; and brings together stakeholders, including investors, for new energy projects.

He obtained his undergraduate degree in international economics from DePaul University and his masters in international relations from the Fletcher School at Tufts University.

He can be reached at cstjames[@]santiagosinclair.com.

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