Reforms May See Mexico Overtake Brazil as LatAm’s No.1 Recipient of FDI

Mexico may soon overtake Brazil to become Latin America’s largest recipient of FDI, according to a study published by Bank of America Merrill Lynch.The investment bank appears to be bullish on Mexican growth after the North American country announced a slew of reform programs in the past one year.

The bank also noted in a press release that foreign direct investment in Latin America and the Caribbean hit a historic high of US$184 billion in 2013, 5% more than in 2012. Given its assessment, the future appears bright even for other emerging market economies such as Chile, Peru and Colombia.

“It is no wonder. Clients around the world increasingly tell us that Latin America is a crucial part of their strategic growth objectives,” said Juan Pablo Cuevas, head of the bank’s Global Transaction Services division in the region.

Across Latin America, the middle class is expanding and consumer spending has grown significantly. Considering the ongoing economic growth, the bank estimates, the middle class will outnumber the region’s poor by 2016.

The expanding middle class, according to the report, is evident in increased sales of auto, health and insurance products.

The report, prepared by the bank’s Global Transaction Services business, has been published in a series of articles, summarizing the challenges and opportunities for companies conducting business in the region.

For U.S. middle-market companies looking to expand internationally, Latin America has been most attractive market. U.S. companies tend to move first into Brazil and Mexico and then expand their operations to secondary markets including Peru, Chile and Colombia.

“Brazil is a complex and challenging country in which to operate while Mexico is generally seen as the easiest,” the report noted.

The bank has suggested that U.S. companies make use of escrow services to shield themselves from M&A-related risks, as well as transaction, regulatory and counterparty risks.