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Article06 May 2024

Latin America: A New Era of Opportunity

Many parts of Latin America are becoming increasingly attractive to international companies looking to grow their business. Yet, navigating in the region presents certain challenges so having the right bank by your side with local expertise is key to unlocking the opportunities.

As global supply chains shift, many parts of Latin America stand to gain from trends like nearshoring and friendshoring that are seeing more international companies establish business in the region.

This diverse region is attracting high levels of capital: in 2022, Foreign Direct Investment in Latin America and the Caribbean reached historic levels, USD 224,579 billion.

Several reasons are behind this interest in the region. This includes recent reforms in key economies, strong domestic markets and relative stability compared to geopolitical uncertainty in other parts of the world.

A commitment to reform 

Out of 32 countries in Latin America and the Caribbean, 21 conducted regulatory reforms in 2019, the last year analyzed by the report Doing Business, by the World Bank.

Colombia has realized the largest number of reforms since 2005 in the region (37), according to the publication. The Colombian government has made strides towards more business-friendly environments by simplifying processes like cross border trading and opening a business.

Furthermore, although challenges remain considerable, relevant improvements have been carried out by the two largest economies of the region.

Brazil is improving its complex tax system through a recently approved constitutional amendment, and innovative features pave the way for more efficiency. The PIX instant payments system is a global success story with over 160 million users. Brazil’s Open Banking initiative, with more than 38 million open finance consents (as of August 2023), could also increase financial efficiency, boost competitiveness, commerce, and financial inclusion.

Mexico has been benefiting from fiscal discipline and reforms. The country has enabled competition and efficiency in sectors including telecommunications and energy whilst making progress to simplify the opening of new business. At the same time, the country has sustained a history of low public debit and meeting fiscal targets.

With valuable reforms, various Latin American countries and companies operating in the region are contributing to global challenges such as food security and energy transition.

Growing economic breadth

While Brazil remains one of the world’s largest agricultural producers, it is also a green energy leader with renewables meeting almost 45% of energy demand. With a population of more than 215 million people – around half of which is middle class – Brazil represents an opportunity for international companies.

Mexico has a population of over 127 million is a similarly attractive retail opportunity while also playing a role as Latin America’s industrial powerhouse.

Meanwhile, Chile and Argentina stand to benefit from growing lithium production for batteries owing to the growing global demand for electric vehicles.

In short, opportunities in Latin America are broader than in the past.

Supply chain opportunities 

The combination of recent reforms, natural resources and strong domestic markets have positioned several Latin American countries to seize opportunities derived from the recent realignment of global supply chains.

Mexico is arguably the most notable example of this trend. Neighbor to the US – goods can reach New York by sea in just five days. And as a member of an active US-MX-CA Agreement, Mexico will likely capture $35 billion of the $78 billion available from nearshoring in the coming years.

Mexico has 14 free trade agreements with 50 countries, giving it access to over 1.3 billion consumers and around 60% of the world’s GDP. It is tightly integrated into US value chains and increasingly to those of East Asia.

North Mexico has become a nearshoring hotspot for global Korean companies, building on the industrial strength of local and US firms already present in the area.

Costa Rica is moving up the economic ladder from services to specialized manufacturing, with recent large pharmaceutical investments. And the independent US territory of Puerto Rico is gaining from friendshoring, strengthening its role as a hub for aerospace and defense manufacturing.

The draft Americas Act, introduced in Congress in March 2024, could open the way for some Latin American countries to join the US-MX-CA Agreement. By offering concessional lending and up to $70 billion to promote nearshoring, it could boost US trade and investment in Latin America and deliver economic benefits for much of the region.

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The right support

While economic conditions and the business climate are on an upswing in many parts of Latin America, the region remains fragmented.

Each country has its own set of rules and regulations governing foreign exchange, capital repatriation, labor practices, bank account opening, taxation, and other aspects of company operations. Understanding these diverse requirements can appear daunting.

Companies from Asia and the US, Europe and the Middle East considering opportunities in Latin America need the right support. Citi has a global network and the largest local presence of any global bank in Latin America, with a well-capitalized local operation in 20 countries. Citi combines this presence with a wide range of financial solutions to deliver local insight and global solutions.

As a result, clients can optimize their working capital across Latin America, leveraging best-in-class receivables and payables solutions, for instance. Similarly, as growing numbers of countries in Latin America embrace instant payments, clients can enjoy benefits such as lower costs and more efficient instant collections.

Citi is fully committed to Latin America and is a global bank with an unmatched local presence in the region and a 110 year history of operations. As companies around the world explore Latin America’s opportunities, Citi’s expertise and experience makes it an ideal bank to provide the support you need to make progress.

 


 

André Cury

Head of Latin America, Citi Commercial Bank

 

Fred Pinto

Head of Latin America, Global Network Banking

 

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