Many Latin American governments have prioritized attracting FDI as a strategy to reactivate the economy and create more jobs for populations after the arrival of the deeply destructive Covid-19 pandemic. This doesn’t signal a great shift; Latin America had always betted heavily on FDI. But with containment measures erasing some 30 million jobs in the region according to the ILO, the stakes have been raised and authorities must respond.
Panama has recently passed a new law that creates a special economic regime for new investments, the Multinational Manufacturing Company Act (EMMA). Among the benefits offered by this new law is a special tax treatment that waives almost all taxes except income tax which is itself lowered to a special rate of 5% against the standard 25% rate.
EMMA also gives foreign workers temporary working visas for 5 years right away and after that those employees will get permanent visas whereas outside of this regime, a foreigner employee gets a 2 years temporary visa and have to wait as much as 10 years or five renewals to be eligible for the permanent status.
Last but not least, these guarantees are bullet proof to any political attacks as it establishes that the benefits of the EMMA License are to be held by companies for 10 years even in case that any new government changes the law.
Costa Rica recently signed up with the IMF for a new loan of around US$1.8 billion, and the country is controlling government expense on salaries trough a new legislative act. It has three main economic activities that is willing to incentivize: tourism, construction and technology.
Tourism accounts for almost 8% of the country’s US$61.8 billion GDP (as of 2019).
There are currently 7 major infrastructure projects in the country financed by the Central American Bank of Economic Integration that are valued at US$2 billion approximately. Costa Rica is leveraging its historic position as a strategic location for regional headquarters for teach companies by creating more Free Trade Zones. Companies have already taken advantage of this offer, including Bayer, Roche, Intel, and IBM among others.
President Ivan Duque recently told local media his government will never “play roulette” with the country’s economy. Major business development projects have also been announced including the construction of an international call center facility of 215,000 square feet in size. This speaks about the country’s commitment to the BPO industry.
Furthermore, the central government recently signed for a credit line worth US$500 million with the IDB that will be used to digitize the justice system. A couple weeks ago in Barranquilla the government launched an initiative to digitize more of the economy and provide greater transparency to attract FDI. The first US$100 million of this will be spent on cybersecurity.
Mexico, one of the two largest economies in Latin America, is headed by President Andrés Manuel Lopez Obrador. The AMLO administration’s political stance can sometimes give investors pause for thought. However, Mexico is a big time exporter, ranking 11th in the world (higher than the UK). The country’s major export destinatio U.S., while over 90% of the FDI Mexico receives flows from North America.
The IMF forecasts a 5% increase in Mexico’s GDP in 2021, and recently US Vice President Kamala Harris announced her intentions to visit Mexico, underlining the strong relationship between the U.S. and its southern neighbor.
Mexico’s federal government is betting largely on the construction sector and it has just announced a $3.7 billion investment plan that should generate at least 300,000 jobs with road building and the rehabilitation of tourist hotspots that should also help reactivate the country’s tourism industry, as well as the Tren Maya project headed by Grupo Carso. Meanwhile, an indicator of business confidence from the Mexican Institute of Statistics and Geography has recovered a drop it suffered last year, reflecting some confidence for an upcoming recovery.
Governments throughout Latin America are trying to fight the economic effects of the pandemic on two fronts: by pushing an aggressive agenda of government spending to follow in a Keynesianism approach, and by proposing and passing new laws to attract foreign capital and new companies.
For companies, this regional approach offers great opportunities in Latin America. Those companies considering moving some business functions outside of the U.S. should consider what the region has to offer.