Latin America has further established itself as a region with considerable economic opportunities. It has seen a proliferation of natural resources, geographic advantages, and in recent years, an increasingly diverse manufacturing and service industries. Costa Rica’s rapid growth in sustainable technology, Chile’s rise as a new fintech hub, and Colombia’s expansion in e-commerce and logistics are only a few examples of how the region has consolidated itself as a new frontier for international investment and development. However, there are also significant structural issues that present a drag on the growth potential for Latin America. Informality, low wages, underemployment, and bureaucratic hurdles remain part of the structural economic factors for many countries in the region. These factors continue to challenge economic growth in Latin America, especially when it comes to creating inclusive and formal employment.
Per the Inter-American Development Bank (IDB), while 70% of the working-age population of Latin America is already engaged in employment, most of these are informal jobs with no social protection, insufficient wages, and limited opportunity for professional growth. This limits the potential for full, shared, and sustainable development. In this context, foreign direct investment (FDI) is playing a key role to accelerate change in the region. FDI brings much-needed capital, creates formal jobs and hiring, fosters skill development and technology transfer, and drives overall productivity growth and competitiveness in key sectors across the region, such as renewable energy, manufacturing, agriculture, and digital services. Indeed, strategic FDI is increasingly being recognized as a critical lever for economic growth in Latin America, supporting innovation and modernizing industrial sectors.
FDI in Latin America: Regional Trends
FDI flows to Latin America have experienced ups and downs in recent years. A combination of global economic uncertainty, political transition, and commodity price fluctuations have driven considerable change across the region. Mauve Group analyzed FDI data for 20 Latin American markets, finding a 9% contraction in total FDI inflows in 2023, despite high growth recorded by some of the region’s largest economies.
Mexico remains one of the most attractive Latin American destinations for foreign investment. The country has reported an influx of USD 35.74 billion in foreign capital between January and September 2024, representing a 8.5% increase in FDI compared to the same period last year. The rise in FDI was driven by increased nearshoring to Mexico, especially in automotive manufacturing, electronics, and renewable energy. Both U.S. and Asian firms have been expanding or setting up new operations in the country, focusing primarily on northern states like Nuevo Leon and Chihuahua for their proximity to the North American market and competitive labor costs.
Other markets have also experienced high growth in FDI flows, according to Latinometrics data. Argentina grew by 57% while Costa Rica saw a 28% increase in FDI, followed by Chile with 19%. Argentina’s growth was driven by investments in lithium extraction, agriculture, and energy projects; Costa Rica has seen a sharp increase in foreign capital inflow with its leadership in sustainable manufacturing and life sciences, while Chile’s technology, renewable energy, and banking sectors have led its impressive growth. These trends demonstrate that FDI continues to serve as a cornerstone for economic growth in Latin America, reinforcing sectors with high potential for innovation and long-term competitiveness.
FDI in Latin America: Market Opportunities
Jaime Bustamante, Regional Director of Business Development at Mauve Group, a Latin American employer-of-record (EOR) and Global Employment Organization (GEO), spoke on these trends and their impact on development in the region. “FDI not only brings in foreign capital, but it also accelerates skill development and innovation,” Jaime Bustamante said. “It creates jobs, stimulates industries, and trains local workers with the skills they need to fill in-demand positions. In that way, it creates a virtuous cycle of productivity and resilience that can help foster long-term and sustainable growth in Latin America.”
Foreign firms, however, still face significant administrative and regulatory challenges when investing in Latin America. One of the most complex issues that still exists for foreign companies entering or expanding in Latin American markets is the sheer complexity of regulatory and tax systems. For example, in countries such as Mexico or Brazil, the administrative burden of navigating labor and tax compliance is often compounded for businesses unfamiliar with local frameworks. Mexico’s corporate tax season, for example, begins on March 31 of every year, while Brazil’s tax season starts on March 17. In both countries, business expansion is often stymied by a lack of support in managing compliance with myriad obligations, such as payroll, human resources, and rigid labor codes and stipulations. This can create a bottleneck of bureaucracy that slows business development.
FDI in Latin America: Regulatory Hurdles
Foreign investors are also sometimes discouraged by abrupt policy shifts and protectionist agendas in certain Latin American countries. Governments undergoing transitions or reform sometimes change tax breaks, minimum wages, or labor stipulations that directly impact foreign investment. This unpredictability underscores the need for stable and transparent regulatory policies that will incentivize long-term FDI.
In this context, employer-of-record (EOR) solutions and global employment organizations (GEO) have become a key differentiator. Mauve Group and similar platforms are helping foreign businesses across the region manage time-intensive and laborious HR and compliance processes, ensuring seamless and localized onboarding with significantly less bureaucracy, risk, and legal exposure. The EOR model allows investors to navigate regulatory frameworks with the support of local experts who can help businesses operate within the rule of law, which is particularly critical in Latin America, where missteps can incur high costs.
FDI and Global Mobility: Latin America
A third key dimension of FDI and its impact on growth in Latin America is global mobility. Cross-border employment and talent exchange are vital aspects of knowledge transfer and development. However, there are also significant gaps between companies and the foreign workers they employ in Latin America.
According to a 2024 study from Mauve Group, 90.8% of expatriate employees in the three countries surveyed, including Brazil, Mexico, and Colombia, reported having had little to no knowledge of labor regulations before their relocation to Latin America. 69.3% also reported feeling “not at all prepared” to navigate administrative processes, including, but not limited to, visa applications, tax compliance, or employee benefits. These findings point to a clear gap in knowledge and preparation for expatriate workers before assignment in Latin America and the importance of on-the-ground HR support.
Latin America is also acutely aware of the need to attract and retain skilled professionals, and governments and private sectors across the region are working to improve their relative advantage in this area. For example, Brazil has been developing its “Startup Visa” for foreign entrepreneurs and innovators, and Chile has unveiled a “Tech Visa” to attract high-tech talent from abroad. Countries are not just competing for capital but also for human capital with these investments in recruitment and onboarding for key industries such as artificial intelligence, clean technology, life sciences, and fintech. These resources are vital for both sustainable innovation and long-term competitiveness in the region.
FDI Success Stories
The potential for FDI to positively impact economic growth in Latin America is evident in the region’s success stories. The deepening relationship between Brazil and China is one example of a growing symbiosis. Trade and investment between Brazil and China are on the rise, with China’s consumption of Brazil’s primary products helping to drive increased demand for Brazilian agribusiness and mining exports. Brazil’s processing and export capabilities are also growing, and Chinese companies are investing in Brazil’s clean energy and automotive manufacturing.
Costa Rica, as mentioned earlier, is another compelling case study for FDI and its sustainable development potential in Latin America. FDI in sustainable technology and related manufacturing is helping position the country as a new global leader in eco-friendly business. Major firms in medical devices, biotechnology, and renewable energy have been attracted by Costa Rica’s reputation for political stability, well-trained workforce, and institutional transparency. This provides a model not just for FDI in Latin America, but one that also aligns with more sustainable, longer-term development plans.
Colombia’s government reforms and successful security measures have opened the door for investment in logistics and transportation. Peru, similarly, has been a regional leader in attracting multinational mining and engineering firms. Chile, despite some limitations, has maintained a consistent and open environment that has made it one of the region’s most attractive destinations, aided by its growing digital ecosystem and services.
The Future of FDI
As global supply chains are reconfigured, nearshoring will remain a critical factor that will determine how and where long-term investors decide to commit capital. Latin America, especially Mexico, Central America, and northern South America, will likely play a key role in the re-shoring and nearshoring of production and supply chains away from Asia. At the same time, Latin American countries must address the institutional and regulatory inefficiencies that have plagued much of the region for decades. Governments must improve the rule of law, reduce bureaucracy, and streamline processes while also making real investments in education and workforce development to ensure that people have the skills they need to support further growth. These are complex goals, however, which are not easily achieved, especially as it takes many years to train a capable workforce.
Sustainable investment, in particular, is an area of focus. Latin America must do more to promote FDI that creates a circular economy around renewable energy, clean technologies, and other eco-friendly industries, while also boosting inclusivity and participation. For example, public-private partnerships (PPP) can help bridge infrastructure and digital gaps, and developing a national brand to attract green investment and digital innovation can help countries like Panama and Uruguay reduce the gap with their neighbors in other areas of economic growth.
Conclusion
Foreign direct investment (FDI) is an essential pillar for sustainable and inclusive economic growth in Latin America. FDI creates formal jobs, stimulates local industry, transfers skills and technology, and connects Latin American economies to global value chains and trade. Despite existing regulatory challenges and structural issues, there are reasons to be optimistic about FDI’s long-term outlook. Latin America is increasing diversification in trade, production, and investment, especially in regards to growing partnerships with China. The region’s future trajectory is bright and will be highly influenced by external factors such as nearshoring as a global economic trend. The most effective strategy to mitigate downside risk and boost the attractiveness of the region in the medium to long term will be to pursue greater transparency, simpler regulations, and investments in human capital to sustain economic growth in Latin America over the coming decades.