Nearshore Americas

A Call to Investors: Don’t Fear Politics in Latin America

Opening a company outside the United States for the fist time can be challenging. For senior executives and business owners, it could mean either a major achievement or the loss of lots of money and credibility; it could turn into either a lifetime achievement or a big failure. Success abroad depends on multiple factors, such as corporate law, the availability of human capital, financial services (including access to capital and bank accounts), taxes and fiscal responsibilities, among other things.

Our focus today will be the dual role of governments in Latin America as regulators and active seekers of foreign direct investment (FDI). Should private investors and business owners trust that their money will be safe? With that question in mind, let’s review a couple Latin American countries.

Brazil

Brazil is the largest economy in Latin America and ranks ninth in the world. It is ruled by president Jair Bolsonaro, a former army general who characterizes his ideology as center-right and who once declared that “the free market is the mother of freedom”.  Brazil closed 2021 with a GDP of US$1.6 trillion. By the end of February 2022, its unemployment rate reached 11.2% and its FDI flows amounted to US$46.4 billion.

Some of the largest mergers and acquisitions in Brazil reflect the trust of regional investors in the country’s capability to safely receive FDI

Brazil  is  a friendly  country  for  international  investors. It recently announced more mining concessions that will result in a long term investment of US$4.4 billion; in an attempt to control inflation, authorities reduced tariffs to some food products to zero; and there’s an initiative to privatize Petrobras, the country’s largest public company, which reported over US$8 billion in earnings during the first quarter of 2022.

Some of the largest mergers and acquisitions in Brazil reflect the trust of regional investors in the country’s capability to safely receive FDI. FEMSA, the number one bottling company for Coca-Cola in Latin America, recently bought a Brazilian distributor for US$111 million. On top of that, Carlos Slim (the 13th richest man in the world and the wealthiest in the region) recently invested over US$3 billion; his telecommunications company, Claro, bought 22% of a local telecom operator’s mobile assets.

With that said, it’s pretty conclusive that Brazil is open to international capital and foreign businesses.

Mexico

Mexico is ruled by center-leftist Andres Manuel Lopez Obrador (known popularly as AMLO). Though his political alignment might scare-off some, he understands that a capitalist system is needed to create jobs for Mexico’s population of 126 million. Proof of his understanding is that his administration is currently negotiating a free trade agreement with the United Kingdom, a top trading partner from which Mexico receives about US$8 billion in FDI.

With  an estimated  GDP of US$1.2 trillion, the country is the second  largest economy in Latin America. The two main drivers of its growth are the automotive and petrochemicals industries.

In spite of its internal issues, Mexico houses manufacturing facilities for three of America’s biggest automobile brands: General Motors, Ford and Chrysler, which have operated in the country for several years. In other words, you can be confident in the fact that the political landscape won’t play against your company if you decide to open shop in the country.

Mexico’s relationship with the US goes a long way back. Due to its geographical proximity, it should surprise no one that the US is Mexico’s main trading partner.  Both countries -alongside Canada- signed a new free trade agreement that has been in effect since July 2020 and which will remain active for at least 16 years. The new legal framework opens up opportunities to start exploring the local market.

In spite of its internal issues, Mexico houses manufacturing facilities for three of America’s biggest automobile brands

Furthermore, companies such as Walmart, Amazon and Apple -the top three in the Fortune 500 list- accumulate over a billion dollars in income every year from their operations in Mexican soil. Their cases make it clear that Mexico is a safe destination to open a company.

Dominican  Republic

The Caribbean country is ruled  by president Luis Abinader, a right-winger who studied financial engineering at Harvard. One of his campaign promises was to make the Dominican Republic a closer trading partner of the US. Before his first 100 days in office, his government signed a cooperation agreement with the US, which granted DR access to about US$2 billion in funds to finance projects related to tourism, infrastructure and energy, the country’s top economic drivers.

DR is going through a golden age of economic growth. For the past 20 years, the country’s GDP has grown at an average yearly rate of 5.3%, and the International Monetary Fund’s (IMF) projections put it at US$109 billion by 2021. With a population of 10 million, its unemployment rate is pretty low (5%) as a result of the US$27 billion in FDI received during the past decade. One of its strongest bets to attract foreign capital has been the development of free trade zones. It holds 75 of them, where over 700 companies from all over the world are currently in operation.

The Dominican Republic is going through a golden age of economic growth

One of the cases of success in DR is the energy giant AES. Founded in Virginia, AES has a large production facility in the country, from where it provides fuel to local and international customers. In the banking industry, Scotiabank has been operating in DR since 1920. It now has 74 branches in the territory, which underlines the sense of safety in the country for foreign capitals.

As you can see, there are plenty of Latin American countries ready to catch, respect and protect foreign investment. You can be sure that the political landscape will not interfere with the goals of your company. Success will depend only on your strategy and management skills.

Ariel Ayala

Ariel Ayala is the business development manager for Mexico, Central America and the Caribbean at the ManpowerGroup, a position he has held for the past eight years. He has been an active member of Panama’s Chamber of Commerce since 2018, and a strategic partner for its Center of Economic Research. You can contact Ariel here.

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