Building Billion-Dollar Businesses in Latin America

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OZY

Wenyi Cai goes to plop down in a chair in a cramped, bare-bones office with white walls, sticky notes and black scuff marks. I pin her at about 29, but to be polite, I pass over the question. Plus, she’s just jumped off a call with an investor that she admits was stressful. “Do you want this one?” I ask, hastily pushing the more comfy chair toward her. “No, it’s fine, whatever,” she shoots back. “Let’s do this. So, I’ve got like … what? Fifteen minutes.”

Cai, who is actually 30, is in a rush because she and her four other partners are out to build businesses through venture capital, but not Silicon Valley Cool. Her Colombia firm, Polymath Ventures, is all at the unglamorous end of the business, searching for ways to build scalable companies and services in underserved markets for Latin America’s emerging middle class. Continue reading on OZY…

photo credit: Juan Felipe Rubio

When The Children Play

sling man

BEACON

He had an innocent face. I looked at him again. I have to say he was a pretty handsome kid: athletic, strong build. He was fast out there on the plaza with the ball, and he was sweating bullets. I asked him what he liked to study and he said mathematics. But romance… That was what he really wanted to know about.

A group of Colombian children play soccer every day after class in the big plaza just a stone’s throw from where they attend school at Cartagena’s La Milagrosa school. One wanted to show me his sketchbook. Another one wanted to know about romance. This is a personal essay about when the children play, Colombia’s La India Catalina, and innocence.

The ball was almost flat.

It seemed worn out and tired. Even the color green was like a brownish green moss. To Juan Carlos and Marlo, it didn’t matter. They knocked the ball back and forth, faking out their opponents, slipping it through the legs, splitting, cutting, spinning. They were kinds in the small pick up game on the brick plaza of the church Santisima de la Trinidad.

Meanwhile, a priest dressed in white robes broke bread, munched on it, and then swallowed it all down with a gulp of wine. He was sweating madly. It was Friday evening mass. Juan Carlos and Marlo come to play after school. They go to a school called La Milagrosa, just down the street from the plaza.

Tonight it was Juan Carlos and Marlo, plus two five year olds. One played goalie. He defended a goal made up of the two pairs of legs of some statues in the plaza. The other goal was a park bench. Juan Carlos beat an older kid, danced right around him. Then he lost it. The older kid came back, beat Juan Carlos, fell, scrambled on all fours for a second, and then picked himself up. He almost scored. The moss green ball got stuck between the feet of the five year old goalie. Save.

The ball they were playing with reminded me of a puffer fish actually. But I knew it wasn’t really. Juan Carlos scored. A young kid fell and scraped his knee. It was a bad slide tackle. He almost cried, but the other children helped him up.

“We’re all friends,” Julieta told me afterward. Julieta is 12 years old and also attends La Miligrosa. She likes art and mathematics and has a crooked smile. Marlo ran off. Juan Carlos likes math too, but he’s also a singer. “I like ballads.” Then there was little Jonathan. “What do you like?” I asked him. “I like futbol!” he said, changing the subject on me. “Not school?” I persuaded.

“Look!” he said, changing the subject on me. It was a notebook. I flipped through it. They were sketches of action heroes. No puffer fish or sea creatures. Disappointing. Then I saw a girl who was topless. Her hands were touching her breasts. “What’s this?!” I exclaimed.

“Those are tits!” said Jonathan. “All you think about is sex,” I told Jonathan.

“And he sketches them too. He copies them. He can’t really imagine them!” said Julieta. It was a good point. Jonathan was 11.

“I didn’t think about sex when I was your age. I thought girls were gross,” I said.

“Really?”

“Uh huh. But there’s a lot more than just sex out there. There’s romance.”

Juan Carlos plays soccer twice a week, Tuesday and Thursday. 2 hours. And then 3 hours on Sunday. “What about mass?” I asked.

“No,” said Juan Carlos. “What do you like better, Jonathan?” I asked. “School or football or church?”

“Football.”

“Isn’t romance stronger?” asked Juan Carlos. He was 14. Jonathan put away his sketches of the boobies. “Stronger than sex?” I asked. I had to.

“Yeah.” I thought for a moment. “Yeah, I guess.”

Brazil’s Bet on Foreign Entrepreneurs

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OZY

Believe it or not, the Silicon Valley isn’t the only force of gravity in the tech startup world that’s sucking up talent. A ways south of the Rio Grande, some of Latin America’s biggest cities are starting to buzz with the same entrepreneurial fervor that the Bay Area is famous for. According to LAVCA — a group that tracks private investment across Latin America — private equity groups and venture capital firms invested $8.9 billion in Latin America in 2013, marking a $1 billion increase since 2012.

Since the early 2000s, Brazil’s economy had been riding a growing economic wave, thanks largely to reforms led by its former Socialist president, Luiz Inácio ”Lula” da Silva. When Lula left office, Brazil’s economy was growing at a rate of 7.5 percent. Continue reading on Ozy…

 

Potatoes and Protests: Losing Benjamin Morales

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BEACON

I knew Benjamin was somewhere. I don’t actually remember how I got to where I was, but I do remember I couldn’t stop the crying. My face was pouring tears. I wasn’t sad though. My mind felt like one great big smudge. I tried to tell myself: this is normal. But nothing about this was normal…

Benjamin Morales is a Colombian farmer who came to protest in the country’s capital. He traveled for hours from his home in half-rural, half-slum Bolivar City to get there. When he did, the peaceful protests he was part of broke out in riotous clashes. I met him accidentally, and briefly, just before the crowd spiraled out of control. Continue reading at Beacon…

Who is Garry Neil Drummond?

Gary Drummond

Who is Garry Neil Drummond? Is he H.E.’s boy, the son of Drummond Co.’s founder, H.E. Drummond, who started the company in Jasper Alabama by putting up his 3 mules for collateral on a $300 bank loan in 1935? Is he Garry, the young civil engineering student who graduated from the University of Alabama in 1961 and became the company’s first engineer?

Or is he Mr. Drummond, the man who owns 100% of the U.S.-based coal mining company, whose majority of assets are made up of a series of open-pit coal mines sprinkled across Colombia’s Northern Caribbean coast? Is he Mr. Drummond, the man who directs a volume of mining activity in Colombia that turns out most of Drummond’s $3 billion in revenues (2012), pays some $278 million in royalties to the Colombian state, and accounts for 25% of Colombia’s total mining royalties?

Most in Colombia recognize him as the latter man. And since 1986, when Drummond Co. acquired its first mine in Colombia, Garry Neil Drummond has earned more and more attention for the controversy surrounding his company.

Recently, Mr. Drummond’s company has been fined more than $100 million and got its shipping license revoked for a a series of blunders, including failure to pay taxes and intending to cover up an environmentally hazardous coal spill through 2013. From Colombia Reports

The Alabama-based company was forced to close its private Caribbean port two weeks ago when it failed to meet the January 1st deadline for the implementation of a direct-loading conveyer belt system. The deadline was set by the Colombian Environmental Ministry after a company barge dumped almost 2,000 tons of coal into the Bay of Santa Marta last year. The regulation outlawing crane-and-barge coal loading had been in place for six years prior to the incident.

But the company has also come under attack in the US for alleged links to paramilitaries and funding the murder of several union leaders who represent Colombian miners at Drummond. From Business and Human Rights

In 2002, the families of three deceased Colombian labour leaders and the union they belonged to, Sintramienergética, filed suit against Drummond Company, Inc. and its wholly-owned subsidiary Drummond Ltd. in US federal court.  The plaintiffs alleged that Drummond hired Colombian paramilitaries to kill and torture the three labour leadersin 2001.  Sintramienergética represents workers at Drummond’s coal mining operations in Colombia…

Drummond Co. seems generally quick to dispute the legal matters it faces in its Colombian operations. But it’s hard to know exactly what Garry Neil Drummond really thinks about any of the complex matters surrounding Drummond’s coal mining in Colombia. For example, in 2012, beset by accusations that he sponsored murder in Colombia, Garry Neil Drummond reportedly confessed,

“I was never in charge of anything in Colombia.”

photo credit: Portafolio

What is .Co?

.co

Quartz recently reported that more than 1.6 million users have registered their web properties with Colombia’s domain name: .co

It does seem like a wise idea for those trying to beat the clutter in .com world, where 111 million users means most of the good names are taken. Getting to a point where the domain was marketable wasn’t easy though.

From Quartz…

…it’s a country domain that was assigned in 1991 to Colombia. Juan Diego Calle, a Colombian-American entrepreneur, won the contract to run it in 2009, after years of effort and a 1,165-page bid. In exchange for exclusive rights to market .co, Calle pays a fee to the Colombian government that goes towards improving the country’s internet infrastructure.

Many registrations come from the country where the domain was born. But not all of them. Companies like Vine, in New York, Up Global out of Seattle, and Recommend out of Paris have snatched up short, sexy, twitter-friendly domain names with the .co brand.

photo credit: .co

Interview: What are the economics behind Colombia’s agrarian protests?

A wave of agrarian strikes and protests have gripped Colombia over the past several weeks.

Farmers, truck drivers, students and other protesters from the countryside to urban centers like Bogota and Medellin have denounced President Juan Manuel Santos’ economic policies, saying that Colombia’s free trade agreements and neoliberal economic policies are hurting farmers.

During the protests in Bogotá last week, a potato grower named Benjamin Morales said “we’re broke because we’re facing high prices in everything from fertilizers, fungicides, pesticides… These products have too many taxes, too many tariffs.

“And about the issue of the FTAs… we’re importing a lot of milk, a lot of cheese and domestic production has fallen,” added Morales.

“It’s the same as [the problem coffee farmers are facing]: fertilizers and pesticides are too expensive, and when we go to harvest, the price is too low. And we don’t receive any kind of subsidy. Coffee growers do. But we don’t.”

I interviewed Economist Mauricio Reina, who is a researcher at Fedesarrollo. Fedesarrollo is a Bogota-based non-partisan think tank that develops research and analysis on economic and social policy in Colombia.

I asked Mr. Reina questions about why farmers are angry, and what economic foundations underlie the agrarian crisis. This is the interview transcript:

W. Tomaselli: It seems like there’s a paradox here: the potato farmers are shouting that the products that come from abroad are pushing down their prices and they can’t compete. They’re upset. But other economists I’ve spoken with say that isn’t an issue that has to do with Colombia’s Free Trade Agreements. They say it’s an issue of productivity. Colombia doesn’t have the productivity to reach the domestic demand in Colombia. But doesn’t that mean that food imports are competing with farmers to reach that demand?

M. Reina: The first thing you’ve got to keep in mind is that the products that protesters are complaining about are imported, but they’re imported at a low level in comparison to the national level of production. In the first place, Colombia only imports frozen potatoes, not fresh potatoes, and that’s from years ago… and this [frozen potato] product doesn’t compete directly with the farmer in the small towns of Colombia. It competes in big urban supermarkets, which in some cases could affect the small farmer, but in the majority of cases doesn’t.

W. Tomaselli: You said it’s a low level of imports coming into the country. How much food is imported into Colombia compared with domestic output?

M. Reina: Yes, it’s really important to look at the size of imports. If you look at frozen potatoes, they accounts for less than 1% of the production of potatoes [in Colombia]. In other words, if a sector goes into crisis with an added 1% of imports, it’s a sector that has serious problems with productivity. It’s not a sector that has problems with free trade agreements or international markets or competition from abroad. It’s a sector that has major problems with productivity.

W. Tomaselli: Can you talk about another example of how this works?

“When you look at the case of milk, milk is imported [into Colombia] as powdered milk. And what happens is more or less what happens with potatoes – it competes with a part of the market, but not with all the milk [Colombia produces]. While more farmers produce regular milk, powdered milk doesn’t compete with them that much.

But in any case, let’s suppose that it were regular milk. Milk that [Colombia] imports accounts for less than 3% of total national production. So a sector that goes into crisis as it sees 3% of imports come into the market is a sector that has serious productivity problems.

In the case of rice, imports don’t even reach 5%. The problem is the domestic sector, not the international market.

W. Tomaselli: Ok, so my question then is if it’s not the free trade agreements, and it’s not about competition from the international market, then what’s happening? Why is there a crisis in the agricultural sector then?

Well, the Colombian agricultural sector has historically been very isolated from the international market by a very protectionist policy. What that means that a sector that has kept out international competition will not have experienced advances in productivity during the last couple decades.

This kind of protectionism has had two different kinds of effects on two different groups of producers.

Colombia’s protectionism has been driven by the big landed estates who have major political representation in the country, and who have very solid backing in congress. So cattle ranchers and rice growers are the types who have searched for protectionist schemes. They’re powerful on a local level. They’re powerful on a political level. And they guarantee that competition from the outside doesn’t enter.

But meanwhile, there are small farmers whose crops don’t compete much with the large landed estates like the rice growers and cattle ranchers. They [grow] fruits, vegetables, the whole line of tropical products – all of these types of farmers haven’t succeeded in gaining influence in the Colombian political arena. Colombia’s agrarian politics have listened to the large landed estates about protecting their economies, but they don’t bother with promoting small farmers’ crops. And those crops, in many cases, are crops that Colombia could export. 

So the central problem here is the protectionist policy that big landed estates promote. It favors the big estates, but it doesn’t favor the small farmers. In any case, it’s resulted in lower development of productivity.

Two additional things to paint the whole picture: first is the whole matter of insecurity in the countryside. We’re starting to slowly approach more security in the countryside. But don’t forget that for half a century, we’ve been dealing with this problem.

The second thing is infrastructure. As the agricultural sector has been so closed, there hasn’t been a need to develop better road infrastructure in order to be able to export and send out product to the international market.

So nowadays, a small farmer can’t find incentives for stockpiling, he doesn’t have resources for commercialization, and he doesn’t have mechanisms for organization in order to face international competition.

We’ve created a closed economy with bad infrastructure. And nowadays, those are the problems that we are suffering from.