Indian tycoon takes on South America’s “Switzerland"

Indian tycoon takes on South America’s “Switzerland” is the title of a report of Financial Times dated 23 August 
 
Pramod Agarwal, an Indian businessman living in London, has sued the Uruguayan government for 3.5 billion dollars compensation for scrapping his iron ore project in Uruguay. He claims to have invested 365 million dollars in the Valentines iron ore mine. His company Zamin Resources started the project in 2006 after some initial preliminary acceptance by the government of Uruguay. It was to be the largest investment in Uruguay with 3 billion dollars. The plan was to export upto 36 million tons of iron ore a year. 

 

But later the Uruguayans became wary of the project for two reasons. Firstly, they feared that the large iron ore production and transportation activities might spoil the quiet and beautiful environment of the country. Unlike countries such as Brazil, Peru and Chile, Uruguay has no mining tradition, nor are there any other significant mining ventures in the country. Agriculture and tourism are the mainstay of the economy. Justifiably, the Uruguayans were concerned that the huge mining project of Agarwal would affect tourism and agriculture. Secondly, they knew that Agarwal’s aim was not to run the project in the long term but to develop it and sell it to the highest bidder. He has done this in other countries. In Brazil, he developed an iron ore project and sold it for 735 million dollars to ENRC of Kazakhstan. So the Uruguayans were skeptical about Agarwal’s long term commitment and did not buy his promises of ecological management. So eventually the Uruguayan government revoked the mining license of Agarwal.

 
Agarwal has claimed that Uruguay’s reputation as an investor-friendly country is just an ‘eyewash’. He has blamed the left wing elements of the Uruguayan government for stopping the project.

Agarwal was a commodity trader who ventured into iron ore mining after his trip to Brazil in 2004. He bought some mining concessions, developed them and sold the assets at high profit margins. He rode on the wave of high global iron ore prices and became a billionaire with his Latin American mining ventures.

Agarwal had a legal dispute earlier over the sale of stake in a Brazilian iron project in 2010 to ENRC of Kazakhstan. The dispute ended with a settlement. 
 
I had met Agarwal in Uruguay  and visited his office as well as the mining site when I was Ambassador to Uruguay, based in Buenos Aires. I was impressed by his entrepreneurial spirit. But I was not at all sure about the success of the project and shared the same reservations as my Uruguayan amigos. In fact, one of my amigos Ruben Azar was trying to facilitate the communication between Agarwal and the Uruguayan authorities. But he too had shared his doubts with me. So I am not surprised that the project ended up as a failure. I doubt the figure of 365 million dollars claimed to be already invested by Agarwal. The actual figure might be one tenth of that. I also think that the claim of compensation of 3.5 billion dollars is preposterous.
 
It is a pity that the name of India is caught up in this business dispute. Agarwal might be holding an Indian passport like Lakshmi Mittal. But his  claim for compensation is based on the British-UK investment protection Treaty. His children hold British passports and hold shares in the mining company. He had got Colombian singer Shakira to sing at the wedding of one of his two daughters in San Clemente Palace, Venice.
 
This is the second failure of a large mining investment project by Indian entrepreneurs in Latin America. Earlier Jindal group had announced a project to invest 2 billion dollars in iron ore mining and in a steel plant in Bolivia. But the Indian company had no intention of building a steel plant and lost interest in mining when the international iron ore prices had crashed. So the Bolivian government cancelled the license and encashed the Jindal guarantee of about 20 million dollars. My blog on this 

There have also been a few more failures of Indian ventures in Latin America including Reddy Labs joint venture in Sao Paulo and Renuka Sugars's acquisition of Brazilian sugar mills. The IIM-A educated promoter CEO of Renuka was described as the "Mittal of sugar business" by Forbes Asia for revolutionizing the sugar production and business in India. Heady with this Indian success Murkumbi had invested around 500 million dollars in Brazil. Renuka became one of the top ten sugar and ethanol producers in the country. But the Brazilian venture ended up in bankruptcy and had sunk the parent company in India too. Renuka has now been bought over by Adanis. Murkumbi has lost his fortune and fame in India due to the failure of his Brazilian venture. 

The main reason for these failures was the lack of understanding of Latin American politics and business culture by the Indian businessmen. The Indian investors knew their business well and were competent in their core business. But they had no idea of the Latin American culture. They plunged into ventures in Latin America without proper study of and adjustment to the local business ecosystem.

These failures have lessons for the other Indian companies planning to invest in Latin America. But the Indians should not be discouraged by these few failures. They should get inspiration from the many success stories such as those of UPL, Mothersons, Aditya Birla Group and TCS who are flourishing in the region with large annual turnovers. UPL, the largest Indian agrochemical firm does more business in Latin America (around 1.5 billion dollars) than in India. The other three have annual turnover of close to a billion dollars each. The Indian investment in Latin America is more than ten billion dollars. There is scope for more Indian investment and business in Latin America in the long term. 

A number of Indian executives, who have lived in Latin America for many years managing Indian business, have become experts on the local business practices. In fact, some of them have been recruited by Latin American companies themselves for expanding their business with India and for their global business. When I asked some of these executives they told me that it took some time for them to understand and adjust to Latin American culture. But afterwards they found it easier to manage business in Latin America than in India. The Indians have told me that they had learnt from the Latin Americans to have work-life balance, have some fun without guilt and enjoy the weekend beach parties and and salsa as much as week day business success.