Concordia’s community is comprised of the world’s preeminent thought leaders, including former heads of state, industry leaders, and policy experts. Commentary from Concordia is series of opinion pieces by Concordia’s community on pressing global issues from a cross-sector perspective. The views of the writers are their own and not those of the organization.
The loss of billions of dollars by state-run oil companies, facing a sharp decline in oil prices, is driving policy change across Latin America. Some governments, like Mexico and Brazil, have loosened their grip on the oil sector by reducing the control that state-backed oil companies have on the industry. This welcome development offers new opportunities for investment and partnership in the public-private partnership space.
A potential pathway to advance progress in the partnership space is the creation of a Pan-American energy alliance, wherein public sector representatives from each participating country, and private sector leaders from various energy and infrastructure firms, come together to improve the investment climate, human capital availability, and regulatory environment to facilitate development in this space. Through such an alliance, new ideas, partnerships, and resources from across the hemisphere can be combined to help identify workable solutions. Positive reforms already underway can be more successfully implemented and give way to other developments.
The current economic crisis in Venezuela, which I mentioned in an op-ed for International Peace Institute’s Global Observatory, highlights what’s at stake. GDP loss for 2016 is estimated at 10 percent, the rate of inflation has surpassed 200 percent, and poverty rates are equal to the Bolivarian Revolution 18 years ago. The food and basic necessities shortage is at such a level that tens of thousands of people flow across the border to Colombia to purchase products that, no matter how long they que in line, aren’t available back home. The people of Venezuela are, in every sense of the word, suffering.
A Pan-American partnership could provide an amazing opportunity for Venezuela.
For example, the opening of the Venezuelan-Colombian border, and the people’s subsequent access to commodities, is currently a political decision. While an agreement to temporarily reopen five access points between the two countries for 15 hours was reached on August 11th, much more work needs to be done to normalize the situation on the border. That work could be achieved through public-private partnerships. The addition of a private sector mentality to the border discussion brings into the equation meaningful incentives and a proven ability to cut through bureaucratic red tape.
A Pan-American partnership would naturally benefit other countries in the region. Venezuela’s policies – and their real-life impact – are not contained within the country’s borders. Its instability is spilling across the region into countries that have no shortage of turmoil of their own. Colombia, which is undergoing a delicate peace process to end its 30-year internal war with the FARC rebel group, may feel this most acutely. An unknown but “quite large” number of Venezuelans have illegally sought refuge in Colombia, straining the nation. This comes against their own oil producing and importing woes: Venezuela’s oil diplomacy has dried up, impairing relations with Colombia, as well as Cuba. A plunge in oil prices not only highlights the linkages across Latin America, but it shows that when one country’s economy begins to crumble, it has ripple effects on stability across the region.
On a recent trip to Colombia, I spoke with many statesmen and business leaders about the security implications resulting from Venezuela’s economic crisis. All agreed that there is a growing appetite for reform and collaboration in the energy space as an avenue to stabilize the market and economies. If Colombia serves as an indicator for the broader regional attitude around a partnership-based solution, then current dynamics bode well for the realization of a Pan-American partnership.
A public-private approach could provide innovative solutions to the energy crisis.
A number of internal steps could be taken by countries in the region to empower such a partnership. First and foremost, a domestic political climate in support of public-private partnerships should be created. Colombia again serves as an example for this: the government passed a ‘P3 law’, Law 1508, in 2012. Colombia’s investment growth climate for 2016 now shows the most promise in the region, especially for high impact infrastructure projects like the energy sector. Following the passage of this law is a $70 billion infrastructure program that aims to improve regional and international connectivity, to reduce transport times, and to address the housing shortage.
Opportunities for partnerships in infrastructure and energy also abound thanks to a $400 million loan from the IDB aimed at fostering private investments in infrastructure and enhancing capabilities for P3s in Colombia. As Colombia’s energy supply is often disrupted by militant groups’ attacks on pipelines, this loan presents a valuable opportunity to alleviate supply vulnerabilities by outsourcing pipeline security.
Once the domestic climate is sufficient to support a Pan-American alliance, an immediate task for the members could be the establishment of cross-border energy transfer frameworks and capabilities in order to lessen the severity and swiftness of energy market turbulence.
If the cyclical energy crises in Latin America have taught us anything, it’s that lasting stability can only be achieved through regional alliances and collaboration across sectors.