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What to expect from Latin America and the Caribbean in 2024

by | Jan 13, 2024

Optimism in 2024 and moving forward

There is no shortage of reasons for optimism for Latin America and the Caribbean in 2024. For example, consider a couple of topics. The first is demographics. The region’s population is still relatively young, and the population peak is expected to occur in four to five decades of the present century. This fact has potentially significant implications for investment, consumption, and competitiveness. The second issue is productivity. The region’s productivity could be structurally higher, but there is room for it to significantly increase.

Now, consider economic policy. Like other regions, Latin America and the Caribbean (LAC) were also exposed to the disruption of global value chains during the pandemic years. However, prudent monetary management led to exemplary inflation control, with rates substantially lower and less persistent than in advanced countries. Furthermore, there is something virtuous about the region’s prudent macroeconomic management, which has largely been maintained even amid changes in political orientation in governments.

Decarbonization can be an opportunity for Latin America and the Caribbean in 2024

But the region’s attractions go beyond that. Unlike any other, it has enormous potential to become a great driver of solutions for decarbonization and food scarcity. Compared to advanced countries, the sustainability agenda is not a wedge that divides the political debate. On the contrary, a point of convergence in public policy formulation has helped expand and accelerate these agendas.

The growing global need to accelerate decarbonization creates enormous space for influence for Latin America and the Caribbean in 2024. Consider ‘powersharing, ‘the business strategy of geographically locating production associated with the availability of green, safe, affordable, and abundant energy. The region has the cleanest electricity grid in the world – Uruguay and Paraguay, for example, have almost 100% green electricity matrixes, and Brazil’s is 85% green. At the same time, the global average is only a fraction of that, which makes the region attractive for energy-intensive industrial investments.

The region has enormous potential for producing green hydrogen (H2V) at competitive costs. It has large reserves of essential critical minerals for the new economy, such as lithium, copper, nickel, graphite, silicon, rare earths, high-grade iron ore, and many other minerals. It is rich in freshwater, varied biomes, and forests. It has gigantic potential for the bioeconomy, many fertile lands still available, a lot of biomass, an incomparable potential to participate and expand the carbon market, and is a world leader in technologies, business models, and biofuel production. Latin America and the Caribbean in 2024 is also a natural candidate to participate in the geographical diversification of manufacturing production associated with the construction of resilience networks against extreme climate phenomena and has been the target of nearshoring and friendshoring strategies, relocating industrial plants that were previously located in Asia to serve the US and European markets.

With this unique set of attributes, the region can produce industrial goods with far fewer emissions than advanced countries and an unparalleled time-to-market and cost structure. Agriculture, in turn, can significantly expand production while advancing sustainable and regenerative technologies, using degraded lands and other environmentally friendly techniques. Powershoring is already attracting investment, including sectors such as steel, green hydrogen (H2V), cement, paper and pulp, fertilizers, SAF, glass, ceramics, chemicals, and others that need to decarbonize to protect business competitiveness and meet environmental compliance.

And consider geopolitics. Unlike other regions, Latin America and the Caribbean are shielded from many of the most complex issues, providing space to pragmatically explore trade and investment opportunities. This issue is not minor. After all, geopolitics increasingly determines the location of investments.

Value addition is critical for the realization of regional potential

The region presents itself to the world as a source of solutions to significant issues, and all of this can lay the foundations for more sustainable and sustained growth. However, for the region to realize its full potential, it will be necessary to focus on value addition, ensuring that international markets function properly, and address unilateral protectionist measures, subsidies, the imposition of rules, standards, certifications, and other barriers. Tariffs can neutralize the environmental comparative and competitive advantages of LAC.

According to IMF estimates, the region is expected to grow modestly in 2024. Still, at a much higher rate than advanced countries, the gap with the average for emerging countries is decreasing. It would not be surprising, as has happened recently if the growth recorded is more significant than expected. Despite the global decline in Foreign Direct Investment (FDI), the region’s relative and absolute participation in FDI has been increasing. It increased from 9% of the total in 2021 to 16% in 2022, and projections indicate further increases in the coming years. Even in a complex fiscal and international context, some countries in the region have seen an improvement in risk indicators, and several of the largest global fund managers are already increasing their exposure in LAC.

Despite the difficulties faced by Latin America and the Caribbean in 2024, there is evidence that the region will be better this year, and the future winds should continue to blow favorably. It is up to governments, the private sector, banks, and multilateral organizations of Latin America and the Caribbean to do their part to help turn the region’s potential into reality.

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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