Latin America: Resilience and Opportunity in the Year Ahead

The last time we spotlighted Latin America, in January 2021, a global pandemic was hitting the region particularly hard due to structural challenges, entrenched inequities and a large portion of the economy engaged in contact-intensive and informal work.

“We’ve been locked up for more than a year, and we can’t bear this any longer,” Colombian Jaime Alirio Pinilla, a former construction worker turned street vendor, told The Economist in May. “The economy is ruined, we’re surviving, not living.”

And COVID-19 wasn’t Latin America’s only challenge in 2021. Brazil faced a historic drought that disrupted crop cycles, incited wildfires, and led to higher electricity prices and water rationing. Income inequality spurred mass protests from Chile to Ecuador to Peru.

And yet, Latin America retained pockets of resilience and opportunity. Thousands of fintech and ecommerce companies served millions of first-time online customers. Both public and private sector entities continued to invest in innovation in areas like mining and renewable energy.

What does this developing landscape look like on the cusp of 2022? Highlights follow.

The convergence of green energy, mining and innovation

Even during the pandemic, these sectors remained active. For example, after postponing the renewables auction we mentioned in our January 2021 article, Colombia awarded contracts for 11 solar PV projects in late October.

And just as automation and 5G have been transforming industries worldwide, Latin America’s natural resources sector has been no exception, from autonomous trucks making their debut in Peru and Brazil to the first 5G pilots and telematic satellite tests in Chile.

The region will need innovations like these to keep up with the world’s climate goals, particularly when it comes to producing the mineral resources necessary for renewable energy technologies.

According to the International Energy Agency, growing the green-energy industry in line with initiatives like the Paris Agreement will require fourfold growth in copper, lithium, zinc and other mineral supplies. These materials are essential to renewable energy installations and storage, including solar photovoltaic (PV) systems, wind power, and batteries.

Mines in Chile, Peru and Mexico account for nearly 40% of estimated global copper production this year, according to S&P Global Market Intelligence, while Peru, Mexico and Bolivia account for an estimated 19% of zinc production.

In the booming electric vehicles market, growth runs on lithium, and no place on Earth has this metal in more abundance than the Lithium Triangle, a region spanning the borders of Argentina, Bolivia and Chile. These nations contain roughly 58% of the world’s lithium resources, and the world is taking notice. According to the Center for Strategic and International Studies, China’s Ganfeng Lithium is the majority stakeholder in Argentina’s Cauchari-Olaroz operation, set to begin production by mid-2022. Additionally, China’s Tianqi Lithium became the second-largest shareholder in SQM, Chile’s largest lithium mining company.

Much hinges on investments like these—particularly by countries outside of China. “The electric car revolution will stall in the West if supplies of crucial battery elements like lithium fail to keep up with the forecast huge increase in demand,” reported a November 2021 article in Forbes. “This will drive battery prices higher, decimate profit margins, and the coveted $100 per kWh battery, which would have signaled the arrival of affordable green vehicles, will remain on the launch pad.”

This confluence of trends bodes well for Latin America’s natural resources sector in the year ahead—so long as operating costs, taxes and the overall business and political environment remain favorable.

Continued leadership in ecommerce

In January, we talked about “a new Latin America” emerging from the pandemic as digital platforms connected consumers to digital goods and services, the fintech sector boomed, and financial inclusion skyrocketed.

“Until the pandemic, retail ecommerce was still in the early stages of consumer adoption,” eMarketer reported. “But in 2020, as retailers and consumers quickly pivoted toward ecommerce, sales soared 63.3% and surpassed the $100 billion mark for the first time.”

Ecommerce reached record heights in Latin America, with the region overtaking Asia-Pacific. This trend is expected to continue, with total digital buyers rising to 248.7 million, or nearly half the region’s population of people 14 and older. Today Brazil, Argentina and Mexico are among the top five countries globally with the highest levels of ecommerce growth.

More broadly, the pandemic and related concerns have reshaped shopping in Latin America. According to digital analytics and brand consulting company Kantar, the conditions of the past 18 months introduced Argentine seniors to ecommerce, connected nearly 1 in 8 Brazilian homes to shopping via WhatsApp, and turned more than half of Colombian households into continued digital shoppers, with 12% saying they would shop more online in the future.

Firms interested in ecommerce in Latin America should put a few trends on their radar. Multinational marketing firm Wagento Creative highlights personalization, sustainability and “green” products, social selling and augmented reality for “try before you buy experiences.”

Caveats and considerations

What could possibly dampen such sunny prospects? In addition to the now-familiar variables of COVID-19 variants and surges, as well as travel restrictions and supply chain and economic obstacles, consider national actions related to fiscal sustainability.

According to the Economic Commission for Latin America and the Caribbean, keep an eye on:

  • Tax revenues, which are currently low relative to the size of the economy
  • External debt burden and debt service. “These levels of debt reduce fiscal space and put recovery and future growth at risk.”
  • How spending is managed in the region, both in terms of efficient delivery and its long-term effect on productivity

Ready to get started? Specialized consultants and advisors can help you evaluate investment opportunities in Latin America this year. For more information, contact us.