Latin America’s Strategic Role in Global Growth and Diversification
Considering the profound changes taking place in the global geopolitical environment, Strategic Investors are realigning their “chess pieces” to position themselves to compete and win in the new world order. Investment in Latin America will be a key to successful growth strategies.
Here are some of the reasons for our conclusion:
While many countries in Latin America struggle with a legacy of social inequality and political instability, most countries offer huge potential for profitable growth investments. With a combined population of almost 700 million people, more than 21 million square meters with vast natural resources, major production of agricultural commodities and raw materials, and an emerging middle class, Latin America is a region rich with opportunities for growth investors. Moreover, relatively attractive valuations made Latin America an important destination for investors in 2022, and the Russian invasion of Ukraine is likely to keep cash flowing into the region.
Of course, as experienced investors know, Latin America is not free from business cycles, inflation risks, and populist governments in some country-markets. That said, we have seen this year significant foreign investment in Latin American stock and bond portfolios, which reached about $18 billion through February. By comparison, the rest of the world emerging markets pulled in net investment of $7.5 billion. Russia’s invasion of Ukraine invasion has intensified concerns about risks across the emerging country-markets in Europe and may explain some of the recent changes in capital flows. Although this situation has prompted a capital market reaction in 2022, the lingering uncertainty about the geopolitical future in Europe as well as Asia will continue to focus strategic investors on the risk-weighted benefits of making long-term acquisitions in the Latin American region.
But investment in Latin America is not simply about commodities. Latin American countries are experiencing solid growth due to innovation. Several countries have become key markets for big tech companies. Because Latin American countries tend to have relatively young populations, consumer businesses related to technology enjoy growing demand. Technical innovations are also quickly adopted. Not surprisingly, technical services and digital solutions are seeing exponential growth due to increasing market penetration. In Latin America, we are also witnessing the development of first-generation of digital companies, including companies such as MercadoLibre (Argentina), iFood (Brazil), Nubank (Brazil), Rappi (Colombia), Dlocal ( Uruguay ), among many others.
Transformation lies ahead in Latin America’s digital commerce sector. As digitization advances throughout the region with smartphones and mobile penetration, established companies along with the new entrants will accelerate demand for digital products and services in financial, e-commerce, and payments. In fact, Latin America is already one of the fastest growing e-commerce markets in the world. The opening of new markets, growth of digital solutions, and relatively low costs of doing business in Latin America will attract M&A investment. Such investment can be the best and fastest way to enter a country-market or expand business within the region.
Latin America is also an attractive region for ESG (Environmental, Social, Governance) investment. Uruguay, for example, one of the most stable countries in Latin America, has the natural resources (hydro, wind, solar, and biomass power) for successful energy transition. Uruguay has created a clean electric power supply matrix in which 97% of its needs come from renewable energy sources. Uruguay is also promoting Green Hydrogen for the next phase of its energy transition. They are committing to long-term projects to supply H2 for applications in heavy-duty transport, e-methanol, e-kerosene, green fertilizers, and blends with natural gas.
CDI Global has professional company search and investment banking teams in Brazil, Mexico, Colombia, and Uruguay. The latter covers Argentina, Chile, and Paraguay. We offer deep experience with acquisitions and other types of business combination with collaboration from more than 30 offices around the world.
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By: Daniel Boutmy, Managing Partner
Cepal Org – UN / EBANX – Beyond borders / Pitchbook/ Reuters/ Bloomberg/ JP Morgan/ Uruguayan Embassy in the United States/ Uruguay XXI – Government Investment Agency