Dependencies, Vulnerabilities, Opportunities: What War in Ukraine Means for Your Latin America-Focused Business

Now in its fifth month, the Ukraine War has impacted Latin American businesses across industries, in all aspects of operations. Multinationals in the IT  sector scrambled to transfer their staff and operations out of the region, which has been a rich source of tech talent. Other companies watched fuel prices sharply rise due to sanctions on Russian oil and found the war’s interconnected impacts changing consumer behavior.

“The highest cost for any airline is fuel and, undoubtedly, it will impact the velocity of the recovery in this post-pandemic environment. We will have to see if the developments in Ukraine do not impact travel demand,” Roberto Alvo, CEO of LATAM Airlines Group, told ALN News in April.

Agriculture producers with Russian trade deals found their citrus fruits, peanuts, and other goods waiting indefinitely in docks. The decreased availability of fertilizer threatened 2023 growing seasons, since Belarus and Russia together account for 40% of the world’s potash supply.

Yet trade disruptions also presented opportunity. Brazil has the potential to expand its global meat distribution and Brazil and Argentina a chance to leverage their record wheat crops as importers from price-sensitive markets in the Middle East, Africa, and Southeast Asia seek a substitute for lower-priced—and now inaccessible—Ukrainian wheat. In the financial sector, rising commodity and oil prices had another ripple effect, making Latin American funds among the best-performing in the first quarter of 2022.

Even with supply chain challenges, rising costs and inflation, and continued uncertainty, many forecasts remain optimistic. In May, Argentina’s President Alberto Fernández described his country as “a reservoir of what the world needs right now: food and energy.”

Latin America has what the world needs in many industries. But the region also needs what the world has for continued progress in other sectors. Here’s how these interconnections are playing out across three areas: mining, 5G, and aerospace.

Rising prices, shortages impact mining extraction and demand: Latin America is not only rich in natural resources; operations for mining many of these resources, like copper, are well established. This gives the region a competitive advantage over newer entrants seeking opportunity amid Ukraine War-related disruption. For example, in the high-demand area of lithium, Chile as the world’s number two producer, Bolivia, and fast-growing Argentina already account for more than half of the world’s resources.

“Switching supplies is easier said than done due to long, multiyear project development and permitting cycles for new supplies,” warns the Columbia/SIPA Center for Global Energy Policy.

That said, high inflation and soaring costs have challenged even established mines to get these resources out of the ground and where they need to go. Copper mines in Panama, Chile, and Peru have cited significant increases in the price of explosives, sulfur, reagents, and steel, as well as  double-digit rises in operating costs and higher freight costs. Gold mines in Chile, Argentina, and Brazil reported a significant impact from higher diesel costs.

Supply chain disruptions affect the market for natural resources as well. Growing adoption of electric vehicles (EVs) is driving demand for lithium batteries. Yet EVs need semiconductors, too, and semiconductor manufacturing is currently impacted by a shortage of palladium, of which Russia is a major producer. Semiconductor production also relies on neon gas, which many manufacturers imported from Ukraine before March 2022.

Neon gas is also used in microchips, a critical component for making semiconductors run. Ukraine’s inability to supply neon gas could increase microchip lead times to over a year.

Supply chain hassles may hinder digital products, 5G: Shortages of Russian palladium and Ukrainian neon gas affect more than just EVs. “The lack of access to materials from both countries is likely to add new pressure to prices of cellphones, datacenter components, videogames, televisions, appliances and vehicles, among many other products,” BNamericas reported in April.

During the COVID-19 pandemic, digital adoption in Latin America soared, from online shopping to fintech and beyond. Latin American nations are building out their 5G networks to support this growth, many through the support and investment of Chinese global leader Huawei. 5G can support up to 100 times more devices than 4G, offers up to 100 times faster speeds, and is five times more responsive.

Unfortunately, the chipsets mentioned previously are a critical component of 5G infrastructure. “Chinese domestic chipmakers, such as Semiconductor Manufacturing International Corp. (SMIC), are busy trying to meet the demand for chips at home,” EE Times reports. Yet China’s telecom sector has not been immune to the Ukraine War’s impacts. “Chinese vendors, such as Honor and Xiaomi, import 60% of smartphones into Russia and have reportedly halved shipments since the conflict started.”

Shifts in aerospace present challenges and opportunities: Russia’s planned withdrawal from the International Space Station is just one way the Ukraine War is impacting space and aerospace. French company Arianespace indefinitely suspended launches in partnership with the Russians in Kazakhstan, including the next mission for the broadband satellite company OneWeb. To increase connectivity in remote areas, Latin American nations have been using low-earth orbit satellites like those from OneWeb along with middle-earth orbit satellites.

OneWeb activity continues in the region nonetheless. In February, the company announced that Leonardo and Thales joint venture Telespazio will supply OneWeb with infrastructure and services for a new satellite gateway in Brazil.

Latin America has a budding and ambitious aerospace sector. The ALCE regional space agency hopes to soon launch its first satellite, and Argentina’s nonprofit CABASE is working on a single point of interchange connecting satellite providers among other internet access initiatives. Argentina has its own space agency, CONAE; leading aerospace companies in-country; and a growing roster of satellite launches, including a radar observation satellite with SpaceX. Could ripple effects from the Ukraine War open more doors?

“As space capabilities grow, more states are seeking to capitalise on the economic, scientific and defence potential of space,” Global Defence Technology reported in June.

Companies across industries can gain valuable lessons from these examples of intersecting impact—for example:

  • Where do sanctions and shifts present new opportunities?
  • How are shortages and supply chain disruptions affecting your own operations as well as your suppliers’?
  • How are the war’s interconnected impacts, like rising prices and inflation, changing demand for your product?

Specialized consultants and advisors can help your business navigate the impact of geopolitical developments. For more information, contact us.