Latin America is a vast region, full of promise and possibility, a true kaleidoscope of nations pushing for growth and better quality of life. To start, the continent covers one-sixth of the Earth, and it has an astounding natural resource endowment, from most minerals and metals in the periodic table, to all sources of energy known to man, and a wide array of agribusinesses and industries. Secondly, a culturally cohesive population of over 650 million[i], gathered in 20 countries and 6 territories; all of these, either emerging or developing economies with relatively weak currencies, creating huge potential for cost efficiencies for international capital. To round up, a rapidly evolving business landscape, highly entrepreneurial and providing a strategic diversification alternative to Asia and Africa, with meaningful structural advantages.
Foreign direct investment (FDI) matters greatly in LATAM. From all cross-border capital inflows in the region over 2010–2019, FDI was the highest -a built up stock of capital of nearly $2.5 trillion, with returns just under 6%-, followed quite distantly by inflows from portfolios, and other investments.
In a global context of lower growth and after years of sharp declines, FDI increased by 3% in 2019, to reach a total of $1.54 trillion. From this figure, Latin America received $161 billion, ~10%, ahead of Africa and economies in transition[i] (CEE, Baltics, CIS, and parts of Asia). Locally based assets and companies are mostly target of acquisitions and investments, with Brazil -the B in BRIC-, leading the pack, in all metrics[ii]. In terms of segments, in Brazil and Mexico, FDI was deployed mostly in manufacturing, but natural resources and related manufacturing take the lead for the remainder of countries (22% as a whole, and up to 45% in the Andean region). As markets regain confidence while the world slowly emerges from the pandemic, the Economic Commission for Latin America and the Caribbean (CEPAL, for its acronym in Spanish) forecasts GDP to expand by 3.7% in 2021[iii][iv].
Six countries take the lion’s share of activity: Mexico, Brazil, Chile, Peru, Colombia, and Argentina. In 2021, Chile, Mexico and Peru, remained investment grade as rated by the main rating agencies[v], with other countries falling down a notch or two, as an effect of COVID.
Latin America offers a great deal of upside and it is calling for international investment to seize these opportunities. Will you answer the call?
Stay tuned for upcoming issues of The Weekly where we will go into specific industries, companies, and where we see possibility. In the meantime, check out our extended report here.
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