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Investments in Chile translate economic potential into real growth

Investments in Chile translate economic potential into real growth

by | May 12, 2024 | FDI Latin America

Chile intends to energize investment processes in the South American country for international companies in the coming months. This effort to promote foreign direct investments in Chile  is being undertaken so that the country’s economic potential can be translated into a genuine offer to demonstrate the great value of the Andean nation as a reliable and lucrative “trading partner.”

Corfo is Chile’s industrial promotion agency

This is one of the tasks of the Production Promotion Corporation (Corfo), whose vice president, Claudio Maggi,  recently participated in the Chile Summit Europe 2024, organized at the Spanish Confederation of Business Organization’s (CEOE) headquarters in Madrid. The purpose of the meeting was to strengthen efforts to deepen the scope of economic and investment relations between Spain and Chile.

The mission of Corfo, the agency of the Government of Chile, is to promote national production and regional economic growth, which is why it is immersed in different activities such as the Chile Summit Europe 2024 to present investors with the offer of possibilities ” for investments in Chile that are quite unique.

“We need global companies to take note of opportunities in Chile and help us become a relevant actor in the task of ecological transition, to have a more sustainable industrial base,” he said in an interview with Europa Press.

In some sectors, such as natural resources such as lithium, green hydrogen, or copper, which are essential for the ecological transition, Chile aspires to achieve horizontal relationships with partners such as Spain, achieving “mutual benefit.”

Streamline project permits for investments in Chile

Chile has “a lot of legal certainty” and “robust” institutions in its favor, as highlighted by the vice president of Corfo. The country does have to, however, still resolve some issues regarding bureaucracy. The Ministry of Economy is “fully focused” on this effort.

“Altering, updating, and streamlining legislation is not easy since new requirements are added to the old ones, and there has not been a cleanup of what is redundant, among other things, due to the fragmented nature of the current bureaucracy,” commented Maggi.

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To advance in this circumstance and accelerate investments in Chile, the Government is developing new legislation to make progress related to sectoral and environmental permits. “Our great challenge now is to modernize and strengthen our public apparatus, and that with this muscle, we can accompany this increase in investments in Chile in a good way,” said the vice president of Corfo.

Another of Chile’s challenges is infrastructure, a fundamental issue to improve the country’s connectivity, with aspects such as the renewal of the maritime fleet, which is one of the sectors expected to adopt green hydrogen the earliest.

Lithium leadership

Investments in Chile, particularly in the lithium sector, can generate great prosperity for the country. The fact that this will not only benefit the investing companies is why Corfo and the Government are betting on opening the door to public and private collaboration through the National Lithium Strategy.

“We have the possibility of participating in the lithium revolution, taking global leadership,” asserted Maggi, who has encouraged companies “with knowledge in lithium operations and the lithium market” to form alliances to develop this industry and make investments in Chile.

In conclusion, Chile stands at a significant economic transformation threshold, poised to leverage its abundant natural resources and institutional robustness into a beacon of investment opportunity. The efforts to increase investments in Chile, spearheaded by entities like the Production Promotion Corporation (Corfo), reflect the Andean nation’s commitment to positioning itself as an attractive destination for foreign direct investment. By showcasing its potential across various sectors, from lithium to green hydrogen and copper, Chile aims to bolster its economy and play a pivotal role in global sustainability initiatives. Despite challenges such as bureaucratic hurdles and infrastructural needs, the Chilean Government’s proactive stance in modernizing legislation and infrastructure underscores its dedication to facilitating a conducive environment for investment. Moreover, the emphasis on public-private collaboration, exemplified by initiatives like the National Lithium Strategy, highlights Chile’s recognition of the importance of partnership in driving innovation and prosperity. As the nation continues to streamline processes and foster strategic alliances, it is well-positioned to harness the full spectrum of its economic potential, becoming not only a lucrative trading partner but also a leader in shaping the future of sustainable industry. With a clear vision and concerted efforts, Chile is poised to translate its economic aspirations into tangible growth and establish itself as a beacon of opportunity on the global stage.

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The IMMEX program in Mexico

The IMMEX program in Mexico

by | May 12, 2024 | FDI Latin America, Podcast

Porfirio Waters
CEO
The Trade Flex Group
McCallen, Texas
pilo@trade-flex.com

LATAM FDI: Today, we have Porfirio Waters with us. Porfirio is the CEO of a company based in McAllen, Texas. It’s called Trade Flex Shelter Services. Today, we will have a conversation about the IMMEX program in Mexico. Welcome, Porfirio. Please tell us about yourself and your company.

Porfirio Waters: Hi, Steven. Thank you for the introduction. My name is Pilo Waters, and I’m the CEO of Trade Flex Shelter Services, or better, the Trade-Flex Group. We specialize in business model analysis, manufacturing management strategies, duty tariff optimization, compliance management, and any regulatory consultation for businesses trying to do a soft landing in Mexico. That’s what our core competency is. We ensure that companies that utilize the IMMEX program in Mexico can succeed. Customer success is critical to us. We also make sure that their cross-border operations are efficient, compliant, and cost-effective,

LATAM FDI: Well, today, we’re going to concentrate on a particular issue, the IMMEX program in Mexico; it is particular to Mexico and its Maquiladora Industry. Porfirio, can you tell us what the IMMEX program in Mexico is? How does it function to promote foreign investment and export-oriented manufacturing?

Porfirio Waters: Well, thank you. The IMMEX program in Mexico is an acronym. It stands for the Manufacturing Industry, Maquiladora, and Export Service. The IMMEX program in Mexico was initially started as the maquiladoras in the old days. Everybody is familiar with the term maquiladora, which was initially established in 1964. Back then, it was called the Fomento a la Industria Maquiladora. It was changed to the IMMEX program in Mexico in 2006. They changed the scheme, making it more modern and more involved with the fiscal aspects of companies to make them more of a bonafide Mexican legal entity. The Maquiladoras, before 1964, were created because the Bracero program ended, and the Mexican government had to produce a way to attract foreign investment.

The primary purpose of the IMMEX Program in Mexico is to allow foreign-based manufacturers to import raw material components into Mexico and process them into manufactured goods for export. Under IMMEX, the benefit is that you can do this without paying any import duties and some of the taxes involved in Mexico. The IMMEX Program in Mexico helps companies with taxes, duties, and things like that, especially countervailing duties and value-added tax.

Mexico does have a value-added tax system, so you get the benefit of avoiding it.

LATAM FDI: As an expert in the IMMEX program in Mexico and dealing with companies that invest in the country to do export-oriented manufacturing, your business plays an active role in guiding companies through the process of getting the IMMEX designation. Is that correct?

Porfirio Waters: Yes, that is correct. We’re involved at the beginning with companies when they are engaged in doing their business planning, their cost models, and things like that. We also help them go through all the steps involved, which can become pretty complicated. They are dealing with a foreign country, so they must understand Mexican tax and business laws and how to structure the entity. We help clients from the very beginning to structure the entity, comply with all the regulatory requirements, and analyze their business model to ensure success. Not all projects are made for the IMMEX program in Mexico. We want to ensure that all clients are successful, and because of this, we want to participate in the due diligence process. Also, as a licensed federal customs broker, I can look at duty strategies, especially in a multinational environment, because many components come from Asia or other countries. We look at the business model to ensure that the goods companies make in Mexico meet substantial transformation requirements. With what’s going on with China in particular, this is very important.

So, we help customers analyze that. We file customers’ rulings on their behalf just so that when they begin operations under the IMMEX program in Mexico, they’re very secure in the decisions that they’ve made. This is because some of these decisions are very expensive and long-term decisions. We help them with all of that.

LATAM FDI: You made a distinction, and you mentioned that you look at a company that you look at, a company, and the IMMEX program makes sense for them and not for others. Can you tell which types of companies it makes sense for and which companies it doesn’t make sense for?

Porfirio Waters: Well, most importantly, the companies that it makes sense for are the ones that can benefit from the labor costs because the majority of savings in Mexico comes from labor. Most expenses are greater in Mexico than in the US. The actual savings is in labor. We see a lot of companies that may come to Mexico with only a 13-employee operation or 15-employee operation. They may already need help in the US to be profitable. They think that by coming into Mexico, they’re going to be profitable all of a sudden. They do not have the labor content required to benefit from being in Mexico. For example, the electricity, utilities, and rent might be more expensive than they’re used to paying in the US. They sometimes discover this after they’ve already launched their project. Then, once they decide to go to Mexico, it’s different from the US, where you can furlough and lay off people. Mexico has stringent laws that protect the workers, where companies have to indemnify them and liquidate them entirely off your payroll before they can let them go. Those are some of the factors that are involved.

Another common issue is that some customers may think they will bring a semi-knock-down product into Mexico, assemble it, or do the finishing operation in Mexico and then with Chinese components. For example, they intend to get it into the US but must pay duties because it is not considered a Mexican-made product.

We see a lot of companies that come in under the IMMEX program in Mexico that need to do their due diligence for the substantial transformation correctly. They come in, make the investment, and import all the components and raw materials. Then, when they export their product, they find out that, Oh, my gosh, I still have to pay the Chinese tariffs, or I have to pay extra duties or dumping duties. Those are the two main things that I see.

LATAM FDI: Are there any specific requirements or criteria for companies to qualify for the IMMEX program in Mexico?

Porfirio Waters: Yes, there are. The most important thing to cover is that to become certified as IMMEX or get approval for the IMMEX program in Mexico, you have to meet a lot of the tax requirements. The first requirement is to have a minimum of $500,000 of finished goods annually. That’s the first requirement. The second requirement to participate in the program is that you must comply with all the fiscal responsibilities that the government requires. Those could be very demanding. There’s a lot of them. Companies have to register with the IRS. They have to register their tax ID number. Also, they must register to import into the United States.

Additionally, they must incorporate their companies. Companies must have their incorporation issued by a notary public. They must also have a very specific contract about how they will operate, their customer, and the entities involved in the transaction. Then, of course, since under the IMMEX program in Mexico, companies are only allowed to import the goods temporarily, and they have to be returned, they have strict inventory guidelines that must be followed.

Everything that’s imported has to be returned within a certain period. It’s 18 months. Some operations, like textiles or sensitive goods, might take six months. Then, the government established a company as an authorized economic operator (OEA), so that’s important. You have to get an additional certification under the OEA to get some of these benefits.

LATAM FDI: What was that term you just mentioned, OEA? Tell us a bit about it.

Porfirio Waters: OEA is Mexico’s security program, which is similar to the Customs, Trade, and Partnership Program (C-TPAT) that we have in the United States. Companies have to comply with some security guidelines and criteria. They have to prepare their procedures manuals, et cetera, and submit them to the government, and then the government gives authorization and makes sure that they comply with it. It takes about a year to get it. Once you comply, you will receive a gold card that you can use for many other benefits that are available under the IMMEX Program in Mexico.

LATAM FDI: Can you elaborate on any incentives provided to companies under IMMEX to encourage them to participate? You just mentioned the… What is it again? OEA?

Porfirio Waters: Companies have fewer customs inspections under the Authorized Economic Operator program (known in Mexico as OEA). The Mexican government treats OEA companies better than those that are not OEA. OEA companies can keep goods in the country longer than ]]those organizations that are not OEA-certified. Also, regarding the IVA or VAT tax, if a company files for refunds or wishes to avoid payment, it facilitates the administration of your value-added tax, which is 16% in Mexico. Those are the main benefits of being an Authorized Economic Operator.

LATAM FDI: What evidence of data exists regarding the effectiveness of the IMMEX program in Mexico in attracting foreign direct investment to Mexico and promoting economic growth? Has IMMEX been a catalyst for a lot of foreign direct investment?

Porfirio Waters: Well, if you look at the numbers, they speak for themselves. From the program’s first inception in 1964, there were only twelve maquiladoras. Today, there are over six thousand. Employment is getting close to reaching three million employees. Those are huge results of the success of the program. The main success of it is that once you’re an IMMEX company, you’re given a lot of liberties that a typical Mexican company would not have from a tax point of view and also mainly from a customs duty point of view. The Mexican duty rates, on average, can be 15 %. They were lowered when Mexico participated in the GATT program. Last year, they increased their 15 % to 25%, and then just recently, they increased from 25 % to 55 % on some aluminum products. Some duties are higher than you are accustomed to in the US or other countries. The IMMEX program in Mexico helps manufacturers avoid all that. You can avoid the duties, you can avoid the IVA, and then you can avoid some of the other requirements that a Mexican national company may have regarding fiscal responsibilities.

Now, with the IMMEX in Mexico, the structure or the scheme was implemented in 2006. From 1965 to 2006, we worked under the strictly maquiladora regime. Then 2006, when it was changed to the IMMEX program in Mexico, they added many more fiscal responsibilities. There’s just a tremendous amount of benefit to using the IMMEX program itself. However, companies must comply and meet the program’s requirements to keep it in force and stay compliant.

LATAM FDI: Have there been any recent developments or changes that have impacted the relevance of the program that you just mentioned?

Porfirio Waters: Well, the biggest one I’ve seen is the friend shoring. Another way to call it is nearshoring, but I like to call it friend-shoring. Through this, companies can bring their supply chain closer. Often, they move it out of an Asian country and into Mexico, which is a friendly neighbor. It’s very beneficial. It’s helpful. The trend is that many companies are trying to move their supply chain, which is the reverse of what they did in 2005. They are trying to bring production back from Asia back to North America. That’s been the most significant catalyst that we’ve seen. The other thing that added a little bit of fuel to the fire was in 2018 when the Trump tariffs were levied on China, and companies had to pay a 25% duty on top of the regular duty they were already paying. This made it hard to do business. They looked to Mexico as a potential solution to that issue. Again, it is a solution, and it works great. Companies must do the due diligence required on the substantial transformation study.

LATAM FDI: Beyond the IMMEX program in Mexico, what other trends should companies considering setting up operations in Mexico be aware of?

Porfirio Waters: Mexico has thirteen free trade agreements with fifty countries besides the duty liabilities that are diminished or eliminated. Mexico has grown tremendously. We’ve seen it in their Peso, how it’s appreciated. It’s been like a shooting star here this last year. Companies have a tremendous opportunity to use it to export back into the United States and to Europe, Central America, South America, and other countries. Even some Asian countries have trade agreements with Mexico now. There’s a tremendous opportunity in Mexico. I mentioned the substantial transformation issue. Some benefits can be derived from manufacturing your product in Mexico versus being made in China or Vietnam. There’s a similarity between languages. Mexico is closer to the US. It’s easy to access. Mexican laws may differ, but they’re much more common to Western law than other countries. Those are the most significant benefits. One of the different things we saw, particularly during the COVID period, was that many companies moved into Mexico, not just because of the Chinese issue with the tariffs but also due to a lack of labor availability in the United States.

During that period, hiring people and keeping the factories running in the United States was difficult. We saw many countries keenly interested in looking into Mexico as a solution. And a lot of companies were able to do that, and they benefited greatly. As we saw the COVID surge in sales, everybody benefited from it.

LATAM FDI: We’ve gone over a pretty good amount of information.

Porfirio Waters: Yes.

LATAM FDI: We typically find that for people who listen to these podcasts, the information they’ve consumed generates further questions. That being the case, how would someone listening to this podcast contact you for assistance setting up operations in Mexico?

Porfirio Waters: Well, we have our website. Our website is www.trade-flex.com. Then we have Lula. Lula is our host. She will greet you as soon as you come to our website. She’ll ask you some questions, and those questions and those answers come directly to me. That mechanism will collect some information, including your email and phone numbers. We can reach out to those making inquiries immediately. And we also have a presence on LinkedIn. We hope that people can follow us there on Trade-Flex Shelter Services. We post many informative articles about what’s happening and the critical issues of interest. We note if we see any disruptors on the horizon. We try to post information about that to keep people informed as much as possible. We stress essential things to consider, avoiding any pitfalls or effects of business disruptions. We can do a thorough business case study. Performing a rigorous business case study ahead of time is essential and invaluable. When you negotiate any of your nearshoring agreements, if you can use someone like Trade-Flex, it’s beneficial.

When you come to Mexico, especially for the first time, having a good CPA is very important because you must be in excellent standing once in the IMMEX program in Mexico. You’re required to file all your tax declarations on time. Failure to do so could suspend some of your privileges. So, it’s essential to get a hold of a good CPA. Another thing that I suggest is to map out your inventory process beforehand. Sometimes, some people come in to make a quick decision. They need to map out their inventory process, and then they’re overwhelmed with all the customs requirements. We help with those things. The border is an invisible line, and it can be that, provided you do all the planning and the preparation ahead of time.

LATAM FDI: Well, you can take people through the process. What we’ll do so that they can contact you with great ease is in the transcript section on the podcast page; we’re going to have a link to your LinkedIn profile so people can contact you directly. We’ll include your email address, and we’ll include your website. So anybody with any questions that have to do with your expertise can contact you.

Porfirio Waters: Thank you very much, Steven. It’s a pleasure to be here with you today.

LATAM FDI: Yes, likewise. And I hope you have a wonderful day.

Porfirio Waters: Thank you.

Latam FDI: I wish you enormous success.

Porfirio Waters: Thank you so much.

Five companies will inject US$60 million of investments in Alto Paraná, Paraguay

Five companies will inject US$60 million of investments in Alto Paraná, Paraguay

by | May 11, 2024 | FDI Latin America

Five new companies will be established in Hernandarias, with an estimated investment of US$60 million. César Torres, governor of Alto Paraná, pointed out the importance of these companies in the economic and social growth of the area.

Hernandarias is a district and city of the Alto Paraná Department, Paraguay. It was named after Hernando Arias de Saavedra, the first South American governor born in the Americas. It is located across the highway from the Itaipu Dam.

The department of Alto Paraná, located in the eastern region of Paraguay, is one of the country’s economic drivers due to its industrial and commercial development.

What are some of the industries found in Alto Paraná

The region is home to companies in the construction, metallurgy, plastics production, and chemical manufacturing sectors.

Recently, the governor of Alto Paraná, César Landy Torres, visited five companies that are being established in the city of Hernandarias as new investments in Alto Paraná.

The companies anticipate an aggregate investment of approximately US$60 million, which will create approximately 500 new jobs.

“These companies are contributing significantly to the region’s economic growth and social development,” Torres highlighted.

The Secretary of Industry and Commerce, Esteban Wiens, organized the tour. As a result of this effort, the governor could meet those responsible for the new investments to learn about their progress and economic projections.

The plants visited are engaged in agricultural activities, construction, plastics manufacturing, and the textile sector.

Which are the companies that will make investments in Alto Paraná

Blend Agroscience: a leading firm in the agro-industrial sector, committed to innovation and sustainability in the production of high-quality agricultural inputs. According to a report by the Paraguayan Government, the investment is projected to be US$40 million. In its initial phase, it will provide 200 jobs.

ConstruFenix is a construction company that plays a fundamental role in developing critical infrastructure in the region, generating employment, and promoting local progress. The estimated investment by the construction company is reported to be US$ 2 million.

Plasticos Yguazú is in the process of constructing a new warehouse, which represents a significant investment in the industrial sector and a significant contribution to the area’s economic growth.

Star Plast: a new plastics maquiladora that promises to generate employment and promote the manufacturing industry in Hernandarias, consolidating its position as a critical regional production center.

América TNT: this textile company is expanding its operations by constructing new warehouses, boosting the local textile industry, and providing employment opportunities for the community.

Regarding the investments in Alto Paraná  that each company will make, Governor Torres pointed out: “Only one of them exceeds US$ 40 million; the exact figure has not yet been provided to us because it will depend on the moment in which they bring certain supplies to the state since one of them estimates to start its in Hernandarias  operations in 2026.”

“This motivates us to continue along the path we have set for ourselves over the years, to guarantee legal security for those who come to invest, and to give equal opportunity to everyone by maintaining clear rules in each sector,” Torres concluded.

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The investment environment in Alto Paraná, Paraguay

Investments in Alto Paraná, Paraguay benefit from a dynamic economic environment characterized by diverse industries, a plentiful labor pool, efficient connectivity, and competitive manufacturing wages.

Alto Paraná is located in the eastern part of Paraguay, relatively far from the capital city of Asunción. It is situated in the country’s eastern region, bordering the Paraná River to the east, serving as the natural border with Brazil. Asunción, on the other hand, is situated in the western part of Paraguay, closer to the country’s center. The distance between Asunción and Alto Paraná is approximately 300 kilometers (about 186 miles) by road.

Industries:

Alto Paraná hosts a range of industries, with a significant focus on manufacturing and agribusiness. The region is renowned for producing textiles, garments, electronics, and agricultural products like soybeans and beef. Additionally, it has seen growth in sectors such as automotive parts manufacturing and food processing. This diverse industrial landscape offers opportunities for investors across various sectors.

Labor Availability:

Labor availability in Alto Paraná is abundant, fueled by a growing population and government efforts to promote vocational training and education. The region benefits from a young workforce eager to participate in the expanding economy. Its proximity to urban centers like Ciudad del Este also ensures a steady influx of labor from neighboring areas.

Connectivity:

Alto Paraná enjoys excellent connectivity within Paraguay and other parts of South America. The region is served by a well-developed road network, including major highways connecting it to Asunción, the capital city, and other key urban centers. Furthermore, it has access to modern ports along the Paraná River, facilitating the transportation of goods to and from neighboring countries like Brazil and Argentina. The Guarani International Airport also enhances connectivity by offering air cargo services and passenger flights to regional destinations.

Typical Wages:

Wages for manufacturing workers in Alto Paraná are competitive within the Paraguayan context, offering an attractive balance between cost and quality. While specific wages vary based on skill level, experience, and industry, they generally remain lower than in more developed countries. Still, they are commensurate with living standards in Paraguay. Workers in the manufacturing sector typically earn wages that enable a decent standard of living in the region.

Paraguay has a national minimum wage that applies to all sectors, including manufacturing. As of March 2024, the minimum wage is set at 2,680.37 Paraguayan Guarani (PYG) per month [Trading Economics]. This translates to roughly USD 380 based on current exchange rates. This is the minimum, and some manufacturing workers will likely earn more.

Overall, Alto Paraná presents a favorable investment environment with a diverse industrial base, ample labor supply, efficient connectivity, and competitive manufacturing wages. These factors contribute to its appeal as a strategic location for businesses seeking to establish or expand operations in Paraguay and beyond.

Alto Paraná, Paraguay, is poised for significant economic growth with five new companies set to inject a total of US$60 million in investment and create 500 jobs in the region, particularly in the city of Hernandarias. Governor César Torres emphasized the importance of these investments for both economic and social development. The companies span diverse sectors including agro-industrial, construction, plastics manufacturing, and textiles, reflecting the region’s dynamic industrial landscape. With a focus on maintaining clear rules and legal security for investors, the government aims to foster an environment conducive to business growth. Alto Paraná’s advantages include a skilled labor pool, efficient connectivity via road and river networks, and competitive manufacturing wages. This combination of factors positions Alto Paraná as an attractive destination for investors looking to capitalize on Paraguay’s burgeoning economy.

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Navigating Growth: Exploring Manufacturing Investment in Latin America and the Caribbean

Navigating Growth: Exploring Manufacturing Investment in Latin America and the Caribbean

by | May 9, 2024 | FDI Latin America

Manufacturing investment in Latin America and the Caribbean has become a compelling option for global companies. It is drawing the attention of manufacturers worldwide. A convergence of factors makes this region an attractive hub for such ventures due to burgeoning consumer markets. For instance, Brazil is the largest consumer market in Latin America. With a population exceeding two hundred million, Brazil boasts a vast and diverse consumer base. Its growing middle class, urbanization trends, and increasing purchasing power make it a prime destination for companies looking to tap into the region’s consumer market. The country’s economy is characterized by a wide range of industries, including automotive, electronics, retail, and telecommunications, catering to Brazilian consumers’ diverse needs and preferences.

In addition, companies that engage in manufacturing investment in Latin America and the Caribbean enjoy strategic geographic positioning and a network of favorable trade agreements. In addition to proximity to the North American market, investment in Latin America and the Caribbean (LAC) by manufacturers benefits immensely from a network of favorable trade agreements. This renders the region increasingly attractive for foreign direct investment (FDI). These agreements catalyze economic growth by lowering trade barriers, streamlining customs procedures, and fostering regulatory coherence among member countries. By providing preferential access to key markets, such as the United States and the European Union, these agreements expand business opportunities within the region. Moreover, they promote regional integration, facilitating the development of cross-border supply chains and enhancing production efficiency. With reduced trade uncertainties and improved market access, LAC emerges as a more appealing destination for FDI, attracting multinational corporations seeking to capitalize on the region’s dynamic markets and abundant resources.

Among the principal reasons why companies are increasingly turning their gaze towards manufacturing investment in Latin America and the Caribbean are:

A Growing Consumer Market

The region’s burgeoning consumer market is one of the primary draws for manufacturers eyeing LAC. With a rising middle class and increasing urbanization, there’s a growing demand for various goods and services. For instance, Brazil’s vast population presents an immense market for different consumer goods, from automobiles to electronics. Furthermore, Mexico, as well, stands out as a growing consumer market, characterized by its dynamic economic landscape and expanding middle class. With a population exceeding 126 million and a steadily rising GDP, Mexico offers a compelling environment for businesses seeking growth opportunities. The country’s increasing urbanization, coupled with rising disposable incomes, has fueled a surge in consumer demand across various sectors, ranging from retail and automotive to technology and entertainment.

Abundant Natural Resources

Latin America and the Caribbean boast rich reservoirs of natural resources, ranging from minerals to agricultural products. This abundance offers manufacturers a reliable supply chain, reducing import dependency and ensuring cost-effectiveness. Countries like Chile are renowned for their copper reserves. Brazil dominates soybean production, and Argentina and Bolivia are emerging as major sources of lithium mining.

 

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A Strategic Location

Situated close to the North American market, LAC serves as an ideal location for manufacturers seeking to access the lucrative markets of the United States and Canada. This strategic positioning reduces transportation costs and facilitates faster delivery times, enhancing competitiveness in the global market.

A Multitude of Trade Agreements

The presence of numerous trade agreements further sweetens the deal for companies eyeing manufacturing investment in Latin America and the Caribbean. These agreements facilitate seamless economic relations between LAC countries and the rest of the world, opening doors to new markets and fostering international trade. For instance, the Mercosur agreement fosters economic cooperation among South American nations, while CAFTA-DR promotes trade between the United States, Central America, and the Dominican Republic.

A Skilled and Cost-Effective Labor Force

One of the critical factors driving manufacturing investment in Latin America and the Caribbean is the availability of a skilled yet cost-effective labor force. Countries like Mexico and Costa Rica are renowned for their well-educated workforce, offering manufacturers a talent pool at competitive wage rates.

Incentives Granted by Countries

Governments across the region offer various incentives to attract manufacturing investment in Latin America and the Caribbean. For instance, Mexico’s maquiladora program provides tax incentives and tariff exemptions for companies that manufacture goods for export. Similarly, Colombia offers tax breaks and grants for companies investing in research and development.

A Developed Infrastructure

Latin America and the Caribbean boast developed infrastructure networks comprising modern ports, highways, and telecommunications systems. This infrastructure facilitates smooth manufacturing operations, ensuring efficient transportation and communication channels.

A Presence of Emerging Technologies and Innovation

The region is witnessing a surge in emerging technologies and innovation hubs, further bolstering its appeal to manufacturers. Countries like Chile and Brazil are investing heavily in technology parks and innovation ecosystems, fostering collaboration between academia, industry, and government.

Political Stability

While political instability is a concern in some parts of Latin America and the Caribbean, several countries offer stable political environments conducive to business operations. Uruguay and Chile are notable examples of countries known for their political stability and business-friendly policies.

The Opportunity to Diversify Investment and Mitigate Risk

Diversification is critical to mitigating risk in the volatile global market, and Latin America and the Caribbean offer ample opportunities for diversifying investment in Latin America and the Caribbean portfolios. Manufacturers can spread risk and capitalize on diverse market dynamics by expanding operations to multiple countries within the region.

In conclusion, the allure of manufacturing investment in Latin America and the Caribbean is multifaceted, driven by factors ranging from growing consumer markets and abundant natural resources to strategic location, favorable trade agreements, and skilled labor forces. With a conducive business environment, stable political landscapes, and a focus on innovation, the region presents a promising landscape for manufacturers seeking to expand their global footprint and capitalize on emerging opportunities.

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Industrial Real Estate in Mexico with Rafael McCadden

Industrial Real Estate in Mexico with Rafael McCadden

by | May 4, 2024 | FDI Latin America, Podcast

Rafael McCadden
Executive Director for Industrial and Logistics
Colliers International
Mexico City, D.F. Mexico
rafael.mccadden@colliers.com

LATAM FDI: Today, we have Rafael McCaden with us. Rafael is the Executive Director for Industrial and Logistics with Colliers in Mexico. Good morning, Raphael. How are you today? Could you tell us about yourself and your company?

Rafael McCadden: Hi, Steve. Good morning. Thanks for this podcast. Of course, I’ve been in real estate most of my life, but industrial now, I would say, for almost 30 years. I started as the Executive Director of the Mexican NAIOP, which is called AMPIP, and then with Colliers for almost 20 years now.

LATAM FDI: Wow. For those who don’t know, AMPIP is the Mexican Maquiladora Association. Is that correct

Rafael McCadden: No. AMPIP is the Developers Association.

LATAM FDI: Okay.

Rafael McCadden: Yes. So, it’s more like NAIOP. Right.

LATAM FDI: Well, some key factors drive demand for industrial real estate in Mexico, given the country’s current landscape. What are those key drivers, Rafael?

Rafael McCadden: Yes. Well, I would say one of the key drivers right now is nearshoring, which is unshoring or friend shoring. It has so many different names now, but it’s the same thing. I would say that the global manufacturing supply chain has changed its course, and now it’s not as global as it used to be for many reasons. Regionalization is the new game. Of course, Mexico, being part of North America, plays a huge role in this, I would say, in many sectors. We’re busier than ever

LATAM FDI: Given this economic landscape, how does the availability of skilled labor influence the location decisions of companies that look to occupy industrial real estate in Mexico for manufacturing purposes?

Rafael McCadden: Great question. Well, you see, there are, I would say, important differences between the workforce in the US and Mexico. For one, if you start looking closely into the average age of engineers or the average age of the population, in the United States, baby boomers are in their late ’60s. The baby boomer generation in Mexico is in its late ’20s. That’s a huge difference. I say it because even though Mexico has pyramids, it’s a young country. The average age is 29 years. That’s a huge advantage. This has resulted in many US and European companies switching to Mexico. This, of course, has positive implications for industrial real estate in Mexico.  Also, design and technical centers are becoming more prevalent. Believe it or not, Mexico graduates the same number of engineers with a population of 130 million as the US with a population of over 350 million. So That tells you how many graduates and how many young students are looking to get a job in Mexico

LATAM FDI: Yes. That seems to be something that many people I speak with comment upon: the availability of good, skilled labor in Mexico. But beyond that, what role do government policies and regulations relations play in shaping the growth and development of the market for industrial real estate in Mexic

Rafael McCadden: The government doesn’t always help the business develop. I can put it that way. But I would say that the trends surpass that big time. Some governments have a more active role, especially state governments. I would say the federal government took a different path by shutting down Promexico, which was a government investment agency. But regardless of that, the trends are helping Mexico. Let me stop here a minute and tell you something that I’ve been, I would say, analyzing, and that is what we started talking about regionalization. Supply chain disruptions are playing a huge role in Mexico’s success. Supply chain disruption, as an example, we can mention the tsunami in 2011 in Fukushima, Japan. So, some people say, What does that have to do with Mexico? And I said, More than you think, Because the auto industry, especially tier one and tier two assembly plants, had to shut down because of the suppliers being affected by the tsunami. And so, some of the largest OEMs, Japanese OEMs, said, This will not happen again. I can’t keep having all the eggs in one basket. So, they started expanding their operations to occupy industrial real estate in Mexico.

LATAM FDI: So, after 2011, more than 300 Japanese auto industry companies, including OEMs like Mazda, Honda, and Nissan, moved to occupy industrial real estate in Mexico in the Bahia region. That played a huge role in that area’s industrial development. Then, as we all know, COVID-19 was a huge game changer in terms of supply chain disruptions. Now, newer supply chain disruptions like the Red Sea, the Panama Canal, and the Baltimore Bridge were torn down. These supply chain disruptions are helping Mexico, which has a 2,000-mile border with the US with 55 border crossings.

LATAM FDI: Concerning border crossing and other investments in Mexico, specifically infrastructure, including transportation and utilities, how does Mexico’s state of development in this area contribute to the attractiveness of locations for industrial real estate in Mexic

Rafael McCadden: Well, being very honest, this tsunami that hit Mexico, which is nearshoring, has challenged our utilities, infrastructure, and transportation. I would also say the developers are trying to play catch-up because we were hit by an unexpected demand for industrial real estate in Mexico. Let me give you an example: Never before has Monterey had over 30 buildings for industrial real estate in Mexico under construction, which they do have today. That tells you the roles that the developers are playing. Developers who weren’t even in the sector, those who were in office development or shopping centers, are moving and putting a lot of interest into the industrial market. They can see that industrial real estate development in Mexico will continue with this trend for a few years. So yes, it’s really interesting to see how also US developers that didn’t care much about Mexico, like Panettoni, for example, they were mainly concentrated on Eastern Europe and other places in the world now are saying, Hey, I’m more interested about Mexico than I was three years or five years ago

LATAM FDI: Getting a view and handle on the physical types of construction you just mentioned, are there any emerging trends in the design and construction of industrial real estate in Mexico

Rafael McCadden: I would say yes. For one thing, industrial buildings are much more environmentally friendly in many ways. So ESG… To give one example. The structures were not typically designed to hold solar panels. Developers didn’t design buildings that could hold them. Now, most developers are designing better structures that can hold solar panels, sprinklers, and HVAC units. That’s one thing. Then power is a huge issue, and that’s one of the reasons why they’re putting in solar panels. And, of course, clear height, that’s another thing. The distribution centers are being more automated than before. So, the requirement for power keeps growing and growing. Because everything that’s being brought into the buildings requires more power. And so, it’s not only on manufacturing, it’s also on distribution centers. Plus, truck fleets now also require charging stations. Those are the trends we can see in the evolution of industrial real estate in Mexico.

LATAM FDI: Can you provide some answers and insight into the competitive landscape of industrial real estate in Mexico? Maybe give us the names of major developers and operators in Mexico, including key players in market dynamics.

Rafael McCadden:  Sure, of course. Well, Prologis, besides being a major global industrial park developer and owner in the US and the world, is also a major player in Mexico. It’s interesting because even though they’re number one, they are focused mainly on six cities. They are concentrated in three border cities: Guadalajara, Monterey, and Mexico City. There are other developers, such as CPA, Amistad, Finsa, and Macquarrie. REITs in Mexico are only 10 years old. So, we didn’t have reeds in the past. Most of the industrial portfolios were owned by the developers. Once REITs were authorized and they had some tax advantages for investors, many insurance companies and retirement funds started investing in industrial real estate in Mexico. The portfolio has changed hands and is now mainly controlled by investment funds, which we call Fibras in Mexico, but it’s the same thing as in the US.

LATAM FDI: Well, Raphael, you’ve provided great information for our listeners. We intend to do this with each discussion with experts like yourself. We want to provide your contact information so that anybody with questions about what they’ve heard can reach you. How would somebody contact you with further questions?

Thank you. Sure. Well, my email is rafael.mccadden@colliers.com. Of course, they could also reach out through LinkedIn. That would be a good way to contact me, and I would say it would be the easiest way to reach out.

LATAM FDI: Thank you for joining me today to discuss industrial real estate in Mexico. This has been very interesting. We’ll put a link to your LinkedIn profile in the transcript section of the page on which the blog post is posted, and we’ll include your email and Collier’s URL for its website. How’s that

Rafael McCadden: Great. I like it. Thank you. Have a great day. It’s not just me, it’s a team. We work throughout Mexico, from Tijuana down to Cancun. We’re constantly traveling and helping companies do soft landings in industrial real estate in Mexico.

LATAM FDI: Well, that’s great. Hopefully, listeners will call you, and you’ll be able to get some new business.

Rafael McCadden:  I appreciate it, Steve. Thank you so very much.

 

 

Promising economic sectors in Colombia

Promising economic sectors in Colombia

by | Apr 21, 2024 | FDI Latin America

Colombia has emerged as a promising destination with significant potential for foreign direct investment. Thanks to its economic stability, diversity of growing sectors, and favorable policies for investors, the country is presented as fertile ground for those seeking to expand their horizons. Below, we explore several of Colombia’s most promising economic sectors and offer an essential guide for those interested in investing in the country.

Invest in Colombia in technology and innovation

The rise of technology startups

Colombia has experienced notable growth in the startup ecosystem, one of Colombia’s most vibrant economic sectors. This is true, especially in areas such as fintech, e-commerce, and technology-based solutions. The growing digitalization of financial services and the rise of e-commerce have opened new avenues for investors. The Colombian government, in turn, has implemented various initiatives to promote innovation and entrepreneurship, offering tax incentives and support to new entrepreneurs.

In Colombia, several cities are hubs for technology startups, with Bogotá leading the pack. Bogotá boasts a vibrant startup ecosystem, thanks to its large population, access to funding, and support infrastructure. Medellín is another significant player, known for its innovation district and various programs supporting entrepreneurship and tech innovation. Cities like Cali, Barranquilla, and Bucaramanga are also emerging as important centers for technology startups, albeit to a lesser extent than Bogotá and Medellín. These cities collectively contribute to Colombia’s growing reputation as a hub for tech entrepreneurship in Latin America.

Investment in green technologies

Increased demands for sustainability have led to growing interest in green technologies, one of Colombia’s promising economic sectors. It is currently experiencing significant growth and innovation driven by various factors, including environmental concerns, government initiatives, and market demand for sustainable solutions. Here are some critical aspects of the green technology sector in Colombia:

  • Renewable Energy: Colombia has abundant natural resources suitable for renewable energy generation, including solar, wind, hydroelectric, and biomass. The country has been investing in expanding its renewable energy infrastructure, with projects such as solar and wind farms becoming more common. Initiatives like the “4G” road infrastructure projects include requirements for incorporating renewable energy sources into their construction.
  • Sustainable Agriculture: Colombia’s agriculture sector is adopting green technologies to improve efficiency, reduce environmental impact, and promote sustainable practices. This includes precision agriculture techniques, organic farming methods, biodegradable packaging, and crop protection materials.
  • Waste Management and Recycling: In Colombia, efforts to address waste management and promote recycling are growing. Green technologies play a crucial role in waste sorting, recycling processes, and converting organic waste into biofuels or fertilizers. Startups focusing on waste-to-energy solutions are emerging to tackle these challenges.
  • Clean Transportation: Colombia is exploring cleaner transportation alternatives to reduce emissions and combat air pollution. This includes promoting electric vehicles (EVs), developing charging infrastructure, and integrating sustainable mobility solutions such as bike-sharing programs and public transportation systems powered by renewable energy.
  • Water Management: Green technologies are being utilized to improve Colombia’s water efficiency, purification, and distribution systems. Innovative solutions such as water recycling, rainwater harvesting, and implementing smart water management systems help conserve water resources and mitigate the impact of droughts and water scarcity.
  • Sustainable Construction: The construction industry in Colombia is increasingly adopting green building practices and eco-friendly materials to reduce energy consumption and environmental footprint. Green building certifications such as LEED (Leadership in Energy and Environmental Design) are gaining popularity, driving the demand for sustainable construction technologies and practices.

Investing in Colombia in technologies that support sustainability benefits the planet and promises attractive returns as demand for green solutions grows.

Investment in the real estate sector

The expanding real estate market

The real estate market is one of the expanding economic sectors in Colombia that has recently shown an upward trend driven by urbanization and the growth of the middle class. Cities like Bogotá, Medellín, and Cali offer opportunities in both the residential and commercial fields. Investing in real estate provides the potential for profit through capital appreciation and passive rental income.

Agriculture and export

A sector with potential: the coffee grower

Colombia is world-renowned for its coffee but has much more to offer in the agricultural sector. With fertile lands and a diverse climate, investment opportunities extend to products such as avocados, cocoa, and exotic flowers. In addition, the government has been working to improve infrastructure and trade agreements to facilitate exports.

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Tourism: one of the most vibrant economic sectors in Colombia

Tourism is another sector with enormous growth potential. Colombia’s rich cultural heritage, biodiversity, and beautiful beaches attract visitors from all over the world.

Investing in Colombia’s tourism sector presents several promising opportunities due to the country’s diverse natural beauty, rich cultural heritage, and growing infrastructure. Here are some potential areas for investment:

  • Ecotourism: Colombia boasts a wealth of biodiversity, including lush rainforests, pristine beaches, and unique ecosystems such as the Amazon and the Andes. Investing in ecotourism ventures like eco-lodges, nature reserves, guided hiking tours, and wildlife watching can capitalize on the increasing demand for sustainable travel experiences.
  • Cultural Tourism: Colombia’s vibrant culture, colorful festivals, and historic sites offer ample investment opportunities. Projects such as heritage tours, cultural events, museum developments, and restoration of historical landmarks can attract domestic and international visitors interested in exploring Colombia’s rich heritage.
  • Adventure Tourism: Colombia’s diverse geography is an ideal destination for adventure seekers. Investments in hiking, mountain biking, rock climbing, whitewater rafting, and paragliding can appeal to adrenaline enthusiasts looking for thrilling experiences in breathtaking settings.
  • Hospitality Infrastructure: As tourism continues to grow, there is a demand for accommodation options ranging from budget hostels to luxury resorts. Investing in the construction or renovation of hotels, resorts, guesthouses, and boutique accommodations can capitalize on the increasing number of visitors to Colombia.
  • Cruise Tourism: Colombia’s coastal cities, including Cartagena and Santa Marta, are popular stops for cruise ships. Investing in port infrastructure, tour operations, and attractions catering to cruise passengers can tap into this lucrative market segment.
  • Health and Wellness Tourism: Colombia’s natural hot springs, spa resorts, and wellness retreats offer opportunities for investment in the burgeoning health and wellness tourism sector. Developments such as wellness resorts, holistic retreat centers, and medical tourism facilities can attract visitors seeking relaxation and rejuvenation.
  • Culinary Tourism: Colombian cuisine is gaining recognition worldwide, with its diverse flavors and regional specialties. Investing in food tours, cooking classes, gastronomic experiences, and culinary festivals can cater to the growing interest in exploring Colombia’s culinary offerings.
  • Infrastructure Development: Improving transportation infrastructure, including roads, airports, and public transportation, can facilitate easier access to tourist destinations across the country. Investing in infrastructure projects can support tourism growth by making it more convenient for visitors to explore Colombia’s attractions.

Overall, tourism is one of the most promising economic sectors in Colombia. It offers diverse opportunities for capitalizing on the country’s natural and cultural assets and contributing to its economic development and job creation.

Visas for entrepreneurs and investors in Colombia

Colombia offers several categories of visas that facilitate entry and stay in the country for those who wish to invest and contribute to the country’s economic development. Below is a brief guide on the visa process that presents the most relevant options for investors:

Migrant Visa (M) for Investors

  • Description: This visa is intended for foreigners who directly invest in Colombia in sectors such as real estate, shares of Colombian companies, or specific projects. The minimum investment amount is adjusted regularly, so it is important to check to determine current requirements.
  • Validity: It is generally valid for up to three years and allows multiple entries into the country.

Resident (R) Visa for Investors

  • Description: Foreigners who have maintained an investor M Visa for a minimum period (usually five years) may qualify for the resident visa. This visa is for those seeking to settle in Colombia permanently and offers additional benefits in terms of residency and access to services.
  • Validity: Indefinite, with the need to renew the immigration card every five years.

Conclusion

Investing in 2024 offers a panorama full of opportunities in various promising economic sectors in Colombia. From technology and sustainability to real estate and tourism, the country is open for business and ready to welcome international investors with open arms. With a well-defined strategy and a clear understanding of the local market, investing in Colombia can be a wise decision that leads to considerable financial success. Colombia is facing a moment of transformation and is positioned as a leader in the region, offering fertile ground for those seeking to diversify and expand their investment portfolio.

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