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In 2024, the spotlight of Spanish investment in Latam will be on Mexico, Colombia, and Chile

by | Jun 2, 2024

Despite the challenges of low growth, weak expansion, and institutional instability in some countries, Spanish investment in Latam remains robust. Companies plan to significantly increase their investments in 2024, a region that already holds significant weight, accounting for more than 58% of large national Spanish companies and 38% of SMEs.

Cuba, Nicaragua, and Venezuela lag behind

This year, Spanish firms strategically directed their interest toward Mexico, Chile, Colombia, Peru, Brazil, Panama, and the Dominican Republic. These countries are perceived as the most attractive destinations, reflecting the current market conditions and geopolitical factors. In contrast, Cuba, Nicaragua, and Venezuela, while still part of the region, are not the primary focus due to their unique challenges.

According to the ‘XVI Spanish Investment Report in Ibero-America’ from IE University, Spanish companies plan to increase their investments in Latam in 2024 and express robust confidence in the region’s economic future. A significant 82% of these companies expect their turnover in the area to increase in the next three years, a clear indication of their positive outlook and belief in the growth potential of Ibero-America. This optimistic view is a strong endorsement of the region’s economic prospects.

Among SMEs, 80% plan to increase their investments in 2024. Of these, 60% will focus on organic growth, while 38% will combine organic growth with strategic purchases. Only 2% plan to reduce their investments, indicating a strong belief in the growth potential of Ibero-America.

Most Spanish companies (73%) anticipate a similar economic situation in 2023, a year that performed better than initially predicted. This positive outlook is solid for Mexico, which, despite the institutional stoppage due to the presidential elections, is ranked first in both valuation and as the best investment destination. Such optimism reflects the resilience and confidence of Spanish companies in the face of challenging economic conditions.

Companies with Spanish investment in LATAM believe that Mexico, Chile, Colombia, the Dominican Republic, Uruguay, Brazil, Peru, and Panama will have the best economic performance in 2024. On the contrary, they believe that Bolivia, Nicaragua, El Salvador, and Cuba will be the countries with the most complicated situation. Argentina leaves the last positions due to the expectation created by Milei, and Ecuador drops due to violence, despite the change with its president Noboa.

Spanish companies foresee more investment in 2024 in 7 of the 19 Ibero-American countries, mainly in Mexico and Colombia. Chile, Peru, Brazil, the Dominican Republic, and Panama are positively viewed. The investment will be maintained in the rest of the markets, including Argentina, Ecuador, Uruguay, and Paraguay.

The risks perceived by companies with Spanish investment in LATAM  have increased significantly for the second year, and a growing number of firms see political instability (84%) as a significant risk or threat to their businesses. Citizen insecurity is becoming more and more worrying (45%). Among the challenges, companies also point out the weight of inflation and exchange rate instability and their impact on sales (49%), as well as legal uncertainty (40%), the economic slowdown (35%), and the deficiency in infrastructure. (18%). Political instability is worrying for companies with Spanish investment in LATAM. This is the case, particularly with countries such as Ecuador.

Regarding the competitive attractions to investing in the region, 67% of the firms highlight, by far, the internal markets (especially Brazil, Mexico, and Colombia) ahead of qualified labor (33%), highly valued in Colombia, Argentina, and Chile. Also, access to raw materials (27%), free trade pacts (27%), the competitiveness of the area (24%), and an advantageous geographical location (22%) are investor considerations. On the other hand, China, apparently the most feared for its penetration in Latam, is not considered a ‘risk’ by Spanish firms since 70% do not consider it a significant competitor.

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Tax frameworks affecting Spanish investment in LATAM

Brazil, Argentina, Venezuela, Colombia, and Bolivia are identified as the countries with the most complex fiscal environments for investors and, in the case of the first, are added protectionist policies that deter many SMEs despite the possibilities that the country offers. Panama, Paraguay, Uruguay, the Dominican Republic, El Salvador, and Honduras stand out as destinations with a more ‘friendly’ tax framework. However, for more than 50% of the firms, taxation in the area does not sufficiently encourage their expansion there.

In terms of presence in Ibero-America in 2023, Mexico was once again where the most prominent companies (82%) and Spanish SMEs (62%) have investments. Colombia has 75% and 62% in second place, respectively. The list is completed by Chile (63% and 44%). Peru and Brazil have 53%. In Central America, Costa Rica and Guatemala are the countries with the most significant presence of Spanish firms. In contrast, Cuba has a percentage of Spanish investment focused on tourism only 2%. Companies put the brakes on investment there in 2023 due to the economic crisis and poor infrastructure.

Mexico City is the investors’ favorite

Mexico City is the metropolis Spanish companies prefer for the ninth consecutive year to locate their central operations in the region. But this year, Bogotá surpasses Miami in second place for the first time, although when deciding where to live, Miami remains the preferred place, followed by Santiago de Chile. Fifty companies with a presence in the region have collaborated in the IE University report, including Santander, BBVA, CAF, Abertis, Iberia, Mapfre, Ríu, and Telefónica.

The report was released shortly after the World Bank (WB) lowered Latam’s growth expectations for this year from 2.3% to 1.6% (2.2% in 2023) due to the economic situation in Argentina and violence and insecurity, which hinders macro progress in several countries in the area and makes Spanish investment in LATAM difficult. By 2025, the World Bank forecasts growth of 2.7%.

Brazil will grow 1.7% this year and 2.2% next year; Mexico will do so at a rate of 2.3% and 2.1%; Chile, 2% and 2.2%; Colombia of 1.3% and 3.2%; Costa Rica of 3.9% and 3.7%; Ecuador, 0.7% and 1.7%; Peru of 2.7% and 2.4% and Uruguay of 3.2% and 2.6%. For its part, Panama will advance by 2.5% and 3.5%; Dominican, 5.1% in 2024 and 5% in 2025; Guatemala, 3% and 3.5%; Nicaragua 3.7% and 3.5%; El Salvador, 2.5% both years; Honduras, 3.4% and 3.3%; Paraguay, 3.8% and 3.6% and Bolivia 1.4% and 1.5%. Argentina will see GDP fall 2.8% this year and grow 5% in 2025.

In conclusion, Spanish investment in LATAM remains robust and optimistic despite the region’s challenges, including political instability, citizen insecurity, and economic volatility. Both large and SMEs, Spanish companies are significantly increasing their investments, particularly in Mexico, Colombia, and Chile, while strategically avoiding higher-risk countries like Cuba and Venezuela. The favorable outlook is driven by solid internal markets, access to qualified labor, and advantageous trade pacts, with Mexico City remaining a key hub for Spanish operations. As economic forecasts indicate modest growth for many LATAM countries, Spanish firms are poised to capitalize on the region’s potential. This underscores the enduring confidence in Spanish investment in LATAM’s economic future.

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