U.S. May Not Want Free Trade With China, But Uruguay Sure Does

(Bloomberg) -- The U.S. may not want to play with China, but Uruguay’s pretty excited about it.

Free trade zone park operator Zonamerica expects its new business center in China and a free trade zone park in Colombia to generate half of its revenue by 2025 as the Uruguayan company diversifies outside of the sagging Mercosur trade bloc, Chief Executive Officer Martin Dovat said.

“By investing in other regions we can hedge our” exposure to Mercosur, Dovat said in an interview.

Zonamerica isn’t waiting for Mercosur to cut a trade deal with China. After opening an office in Foshan last year, the company recently launched an e-commerce portal with JD.com that sells Latin American products like wine and nuts directly to Chinese consumers.

Zonamerica’s geographic diversification comes at a time of deep economic malaise in Mercosur with Argentina in the throes of a currency crisis and slow-growth Brazil headed into a general election in October with no clear front-runner. At least Uruguay is expected to grow 2.4 percent this year, while Colombia, the No. 2 economy in the so-called Pacific Alliance of Latin American countries, could expand as much as 3 percent.

For the current fiscal year ending Sept. 30, Uruguay should account for more than 90 percent of Zonamerica’s estimated sales of $47.2 million, a 3.3 percent increase from 2017, he said.

"We see that our tenants invested in Mercosur are also operating in the Pacific Alliance region. It makes sense for us to be their partners in both regions,” said Dovat, who was promoted to the head of Zonamerica Uruguay in May after 12 years in the business, according to his LinkedIn profile.

This year, the company expects to start the construction of a second building at the free zone it opened in Cali, Colombia, as part of a joint venture with local group Carvajal SA, he said.

In Uruguay, Zonamerica plans to complete its $30 million bond program by the end of 2020 to finance remodeling and the construction of new office space at its home campus, where more than 300 companies operate.

The company may consider capital markets financing for new projects, including a multi-use development next to its Montevideo free zone, which is being permitted now, said Dovat, whose family owns a controlling stake in Zonamerica.

“Growth in a capital intensive business has to be financed through adequate vehicles and we see financial trusts, REITs and public bond issuance as very interesting tools,” he said.

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