After the drop in Latin American investment in Spain, it has recovered in 2021, according to data from the Global LATAM 2021 report, promoted by ICEX-Invest in Spain. In this sense, it was recorded an investment of 1,044 million, which represents an increase over the previous year that was 1,000 million euros. Furthermore, in terms of projects greenfield received from the region, the highest number in the historical series was reached. In this way, Spain consolidates itself as the second world destination for Latin American investment outside the region, only behind the United Statesand is the first gateway for Latin American capital to enter the European market.
During the presentation of the report, the CEO of ICEX Spain Export and Investment, Maria Penahas highlighted the importance of this study because it is “the only one that carries out an exhaustive and regular follow-up of this important economic reality”, what serves ICEX to be able “design and implement initiatives that allow us to continue improving Spain’s position as a destination for Latin American capital”.
In view of the results of the report, Peña has valued the “Ample space exists for Latin American companies to continue investing abroad, and for Spain to continue to be the main destination for these investments when they go to the European continent.”
For his part, the general secretary of the SEGIB, Andrew Allamand, underlined the fact that the report complements the traditional vision of the region, by concentrating on the investments that come from Latin America to the world. “After the fall suffered by the pandemic, it is clear that today our region is positioned as an active and attractive protagonist for potential investment recipient countries. Our obligation today is to continue working to face the challenges of the global scenario and encourage investments to and from Latin America.“, he pointed.
Latin American companies constitute a fundamental part of the Spanish business fabric. Together, the region’s accumulated investment in Spain is 47,168 million euros -63,332 million if investments in holdings are added-, which represents 9.8% of all foreign investment received by Spain. The trend is also strongly growing, since investment has increased by 92% since 2010. OnlyUnited States, United Kingdom and France have invested more in Spain than Latin American companieswhich exceed in volume invested other middle-income economies such as China.
According to the report, it is expected that Latin American companies will continue to make significant investments in Spain in the coming years by several factors: the macroeconomic and institutional stability offered by the country, the possibility of building a global brand from here, and access to technology and knowledge networks.
Other aspects that will favor this trend are the relative ease with which the large Latin American companies continue to finance their expansion processes in international markets; the need to achieve scale and the ambition to access the European market by technology companies in the region, or progress in the modernization of pending bilateral agreements with Chile and Mexico.
Global investment of 57,403 million dollars
Like the trend in Spain, foreign investment by Latin American companies at a global level increased up to 57,403 million dollars last year, according to data from Global LATAM. This is one of the highest figures in the historical series and 25.5% more than pre-pandemic levels.
In cumulative terms, Brazil has the highest Latin American investment in the world with 277,454 million dollars, followed by Mexico (178,947 million) and Chili (145,333 million). Regarding its economic size, in terms of GDP, however, Chile leads foreign accumulated investment, far behind the rest of the countries, ahead of Colombia and Brazil. On the contrary, other economies such as Peru or Argentina have a less internationalized business fabric.
For sectors, the largest investments abroad in 2021 were registered in those industries least impacted by the crisis derived from the pandemic. Thus, the sectors that lead Latin American international investment (by number of projects) are the information technology, food and beverages, and financial services. On the contrary, international investment projects in tourism, the automotive industry and the manufacturing of industrial equipment, sectors highly affected by business closures and disruptions in supply chains, have not recovered pre-pandemic levels.
As for the startup, Latin America has had an explosion in recent years of this type of young technology companies with a clear global ambition. According to a study by the Inter-American Development Bank (IDB), there are currently 1,005 startups born in the region with a value of more than 100,000 million dollars, totaling 245,000 employees, present in practically all sectors of the Latin American economy. Prominent examples are Rappi (food delivery, Colombia), Nubank (fintech, Brazil), Kavak (car sales, Mexico), Despegar (tourism, Argentina) or Betterfly (telemedicine, Chile).
According to the Global LATAM report, these companies are leading a new wave of investment abroad. Looking ahead to 2022, the study indicates that the prospects for foreign investment are characterized by high uncertainty, derived from the process of coming out of the pandemic and other internal economic or social factors, such as the rise in interest rates in the region, the upward trajectory of inflation or the electoral processes that will take place this year in countries like Brazil or Colombia.
On the other hand, the private capital that invests in startups requires them to reach scale and international markets so that they become global leaders, achieve the expected profitability, and exit the capital of the companies through a sale at a high valuation. For this reason, there is an increasing number of Latin American startups that operate mainly in other countries in the region, but that are also opening operations in the United States and Europe.
I LATAM Global Barometer
What novelty This year, the report includes the results of the first LATAM Global Barometer, carried out in collaboration with the Council of Ibero-American Entrepreneurs (CEIB). The Barometer analyzes the current perception by companies in the region of the Latin American economy, of which 79.2% have a neutral or negative assessment. Among other aspects, they are also asked about their international investment forecasts, and 34% of the companies have indicated that they plan to start operations in 2022, while 28.8% expect to increase them. The main investment destinations would be Latin America itself (46.6%), the United States (26.9%) and Spain (9.8%).
Latin American companies point out five main obstacles to its internationalization: regulation in the destination market, taxation in the company’s headquarters country, access to knowledge about international business opportunities, the image of the company’s country of origin, and finding a suitable partner in the investment destination.
In addition to the aspects mentioned, the companies surveyed indicate that, in order to increase their investment abroad, Latin American governments should work on the elimination of administrative obstacles and on greater economic and commercial integration within the region.