Latin America entered the COVID-19 pandemic with a number of economic vulnerabilities. Almost 45 percent of the region’s jobs are in contact-intensive sectors such as restaurants, store-based retail, and public transportation, for example. This compares to just over 30 percent for emerging markets. Furthermore, many Latin American nations had already been grappling with longstanding social inequalities and structural challenges.
What does this mean for the future? The International Monetary Fund anticipates an economic contraction of over 8 percent for Latin America, the biggest projected fall in GDP among major world regions. According to the World Bank, Latin America’s economies will not return to 2019 levels until 2023.
Should internationally focused companies look elsewhere this year? Not necessarily. Business opportunities still exist in this market of over 654 million people, COVID-19 and other challenges notwithstanding. Success lies in knowing where to look and how to manage the risks.
Leadership in ecommerce and fintech
As COVID-19 transformed so many aspects of business and daily life, Latin American consumers and companies swiftly responded with accelerated ecommerce and digitization.
In Sao Paulo and Buenos Aires, prolonged government-mandated lockdowns forced millions of shoppers online—and consumers across the region have been following suit. An estimated 52 million people in Latin America are expected to buy online for the first time during the pandemic, according to research by the Brazilian online payment platform EBANX.
“There is a new Latin America that emerges from the pandemic,” said EBANX co-founder and COO João Del Valle. “Millions of consumers were able to access digital goods and services and were financially included with the surge of new products.”
In fact, Latin America has replaced longtime leader Asia-Pacific as the fastest-growing market for ecommerce, according to eMarketer Insider Intelligence. Looking ahead, retail ecommerce sales in the region are expected to grow by over 36 percent.
Also booming are digital methods of payment. For years, Latin America has fostered a growing fintech ecosystem, with startups and investors attracted to infrastructure development in the region, increases in smartphone ownership and waning customer satisfaction with traditional banks. Today Latin America is home to over 1,000 fintech companies.
Where is Latin America’s fintech sector headed? In a survey of 1,075 fintechs from Argentina, Brazil, Chile, Colombia, and Mexico, payments, lending, and B2B enterprise financial management solutions predominated, according to Contxto, which covers Latin America’s tech and venture capital news. Contxto also identified remittances and foreign exchanges are areas that haven’t yet reached their full potential.
An entrenched, tech-savvy agricultural sector
Not only are more people shopping from home due to the pandemic, they’re cooking at home more as well—and Latin America’s producers of livestock, wine, and fruit are poised to accommodate these shifting habits.
Despite temporary facility closures, the region’s protein businesses have shown resilience, according to Fitch Ratings. In the wine industry, Argentina has remained a leading exporter, buoyed by bulk wine exports to Spain and increased exports of bottled wine to the United States. Latin America’s fruit growers have been using innovations like AgroGenius’ precision technologies for measuring fruit firmness to maintain product quality and a competitive edge.
Agricultural companies in Latin America have a long history of leveraging innovation. In Colombia, for instance, the Mercado Campesino website unites farmers and consumers, the Agrapp and Agroune web platforms connect producers to financing and sustainable practices, and INNTERRA and CurubaTech help farmers use data to manage risk and improve productivity. Across Latin America, farmers remain avid adopters of “smart agriculture,” from precision sensors and control systems to drones and other monitoring equipment.
Innovation and incentives in energy and natural resources
Latin America’s natural resources sector is also committed to technological advancements. In July, Chile’s mining council, along with technology transfer organization Fundación Chile and promotion entity Corporación Alta Ley, presented an “innovation roadmap.” This initiative encourages the use of automation, 3D modeling, sensors, blockchain, and wearable devices to promote safety, productivity, and exploration.
Companies are already using many of these technologies. Nexa Resources is working with ABB on industrial automation systems for its Brazil and Peru operations. In Chilean mining operations, autonomous trucks are being used to increase safety and reduce costs in open-pit mining.
Many Latin American governments have been using recovery packages and other incentives to bolster the health of their natural resources and energy sectors. Colombia’s president announced plans for a renewable energy auction in 2021. The nation ranks fourth in the region for commitment of public money to fossil fuels, clean energy, and other energy areas. Brazil leads such investments at $5 billion, followed by Mexico at just under $3 billion, and Argentina at $1.5 billion.
Monitoring regions and risk
As COVID-19’s impact continues to unfold in 2021, the business environment will look different across Latin American nations and affect industries differently. As you evaluate the landscape:
- Be cognizant of recovery programs and support in your specific market of interest
- Monitor political developments, government programs for consumers and businesses, and incentives for private-sector investment
- Perhaps most importantly, watch closely how each nation continues to manage the COVID-19 pandemic through mask-wearing and social distancing mandates, lockdowns, contact tracing, vaccine administration, and other public health measures
Ready to get started? Specialized consultants and advisors can help you evaluate investment opportunities in Latin America this year. For more information, contact us.