Andean Multinational Companies: an alternative for overcoming the crisis

(Caracas, July 4, 1990).- "The Andean Group, despite delays and deficiencies, is the strongest integrationist and most institutionalized movement of all those that have been attempted in Latin America," CAF President & CEO Montaño said at the opening yesterday (Tuesday, July 3) of a seminar on Andean multinational companies (EMAs) held in Caracas, Venezuela, with CAF sponsorship.

"Some 30 companies of this type are currently operating in the subregion; most of them in the industrial sector," Montaño said.

CAF, in its capacity as development bank of the Andean Group (formed by Bolivia, Colombia, Ecuador, Peru and Venezuela) is committed to promoting the formation of Andean multinational companies with up to 20% of their equity as seed capital, and in all cases advice, non-reimbursable grants for preparation of pre-feasibility studies, and appropriate financing to back their formation.

This seminar held in Caracas is part of this promotional activity. In his remarks, Montaño invited "private business, members of the government with responsibility for creating an adequate institutional and legal framework to reflect very seriously on the extraordinary possibilities offered by EMAs."

Venezuelan Finance Minister Moisés Naim said today the outlook for the formation of these companies was more hopeful because Andean governments had changed their policy in this respect. Restrictions on foreign investment have been greatly eased, new customs duty regimes have been put in place, and an attempt is being made to harmonize exchange policies.

The vice president of Fedecámeras Jorge Chapellíon - another of the speakers at the inaugural session - said lack of private sector participation in the integration process was why it had moved slowly. "As these fundamental actors play a more active role, Andean integration will become stronger," he said.

Presidential Commissioner for Integration Affairs Pedro Carmona said, "the lost decade – the 1980s – should give way to a decade of achievements in the 1990s." After the three meetings of the Andean heads of state, the instruments needed to speed up compliance with the integrationist agreements are now in place. "At the latest by September, modern updated schemes should be in place to develop trade and execute projects of shared interest," he added.

What is an EMA? Andean Multinational Companies are associations of businesses from two or more countries dedicated to any type of activity: industry, production, commerce or services. Their purpose is to interconnect Andean capital and technology in order to exploit and channel domestic savings and facilitate execution of projects of common interest .

The basic requirements are that the EMA must be formed as a corporation with principle domicile in one of the member countries of the Andean Group, and with possibilities of an extra-subregional share of 20% of capital, except for Bolivia and Ecuador where this can be 40%. At least 15% of the capital has to be contributed by the business partner of the host country.

Legally, EMAs are governed by their articles of incorporation and Andean Pact Decision 244. For any aspect not regulated by these provisions, the legislation of the host country applies.

All investors in an EMA receive special treatment. They are able to transfer out of the country all net profits which come from their direct investment; enjoy the advantages of the Andean Pact liberalization program; open branches in any member country without paying double tax; receive preferential treatment for contracting technology and investment or reinvestment prerogatives in the host country without special authorization, etc.

CAF seminar A seminar held in Caracas yesterday brought together 150 representatives from the public and private sectors. Similar events were held in Bogota and Quito in April and May last which obtained results aimed at improving this type of company.

The seminar recommended: more stable legal certainty for the special treatment offered by governments to investors in an EMA; conversion of the EMA regimes into a real policy of incentives (tax, customs, economic, etc); broader participation of foreign capital in the EMAs; review of Decision 244 to allow a type of association other than a corporation; creation of categories of EMAs by size to facilitate associations of small- and medium-sized industries.

The Corporation presented its work to promote the EMAs, for which a US$4 million fund was set up which – through non-reimbursable technical cooperation grants – will finance pre-feasibility studies on investment projects, refresher courses for business, participation with seed capital to the setting up of EMAs, and information and exchange seminars.