In the heart of many impressive trends, Latin American countries, covering 13% of Earth's surface and with a 650 million population, feature a strong blend of low-cost talent, market opportunity, and conducive regulatory frameworks that can help drive new businesses long into the future.
Therefore, many parts of Latin America are becoming increasingly attractive to international companies looking to grow their business. According to Citi reports, in 2022 Latin America attracted USD 224,579 billion of Foreign Direct Investment. Several reasons are behind this interest in the region. These include, recent reforms in key economies, strong domestic markets, and relative stability compared to geopolitical uncertainty in other parts of the world.
Yet, navigating in the region presents certain challenges therefore having the right law firm with local expertise is key to unlocking the opportunities and understanding the feasible threats. For instance, as global supply chains shift, many parts of Latin America stand to gain from trends like nearshoring and friendshoring that are seeing more international companies establish a business in the region, however, the lack of power in some regions and reduced rule of law in others can hinder investments.
Thanks to increasing digital access, high population density, an abundance of skilled workers, and the steady development of the entire region, Latin American countries represent a sea of international business opportunities for a variety of companies. In this short paper, we will focus our attention on three trends, which are linked one to the other: (i) Data Centres and IA, (ii) Energy and Natural Resources, and (iii) Critical Infrastructures Construction.
Data Centres and AI
A revolution that will not be stopped anytime soon, Data Centres and AI support will consume massive amounts of capital, space, materials, and energy. According to Credence Research and CBRE, the Latin America Data Centre market is projected to grow from USD 16,534.11 million in 2023 to USD 29,783.77 million by 2032, reflecting a compound annual growth rate (CAGR) of 10% being Querétaro (Mexico), Sao Paulo (Brazil), Santiago (Chile) and Bogotá (Colombia) the current hubs. With the proximity to the United States, major tech companies are investing not only in these infrastructures but in related components such as semiconductors and related supports such as hyper scales and clouds. Space and industrial parks will continue to be an area of opportunity. This of course, shall be accordingly to net zero goals.
Energy and Natural Resources
As explained in the above paragraph, if net zero and AI goals are met by 2030, some disruptive decisions shall be made. Perhaps the most important is a new approach towards nuclear power as well as a confirmation of the urgency of grid expansion. According to Morgan Stanley Research, nuclear power needs to contribute 5% points more to electricity supply by 2030, since they are baseload technology; it fills the capacity and variability gap of renewables, providing the so-needed power for the impressive current and future trends of new human activities, including the already discussed Data Centres and artificial intelligence. Indeed, by 2027, Generative AI alone will use 378 TWh of power and Data Centres will consume 4% of global power demands. This will require, according to Morgan Stanley Research, 72 GW of incremental power and grid investments to the tune of 275 US Billion. Indeed, grid interconnection and reshoring will continue to be bottlenecks in Latin America at the same time more power batteries are needed to smooth renewable variability.
Together with those needs, the control and availability of critical raw materials such as lithium, nickel, and cobalt are in high demand. Some Latin American countries have recently enacted changes to their laws to consider those materials and minerals as property of their Nations, meaning that they are the only ones entitled to their exploitation. The extent to which this still creates collaboration schemes with private companies shall be reviewed from case to case, but as in many other areas, those changes are sometimes not aligned with the real financial capacity or experience to fulfill the desired nationalistic result, which opens space for tailor-made public-private partnerships.
Construction and Major Infrastructure
Aside from the so-needed grid expansion and power generation capacity, Latin American countries have embarked on impressive construction projects in the past 5 years. The extent of collaboration depends again on each local jurisdiction and in particular, public procurement and public works laws in Latin America shall be carefully understood. Experience in legal project management is crucial to navigate the complexities of infrastructure projects in Latin America where political decisions can change some circumstances related to project construction. Examples are plenty.
Trends in power production, grid capacity, upstream, downstream, LNG, water treatment, waste disposal, railroads, ports, and transports are growing and indeed Latin America needs to rise to the challenge by strengthening its infrastructure and ensuring that it can meet the demands of a re-globalized world and re-defined supply chains. The opportunities are huge since the region invests only about 2-2.1% of its GDP in infrastructure annually, a figure that has remained consistent over the last decade which is considerably lower than that of other regions, such as East Asia, which invests around 6%, and even some African countries, which invest about 4%.
This low investment rate indicates that the infrastructure gap in Latin America is not being closed, presenting both a challenge for new industries and activities (as above explained) and an opportunity. This gap, combined with fiscal deficits and public financial restrictions, provides a significant opportunity for the private sector. However, it requires supportive government policies to increase infrastructure expenditures. Resilience in supply networks and geopolitical dynamics, especially in countries like Mexico, further emphasizes the need for robust infrastructure investments. One particular bottleneck in the context of Mexico is energy. The forecasted nearshoring trends could need approximately $180 billion in energy investments over the next ten years to support this shift.
All those trends are obviously linked to other areas where global firms such as DWF are ready to help with, including but not limited to M&A, Finance, Corporate, Regulatory, Legal Operations, Insurance, Construction and others.
