Doing Business in Latin America 2023: Key Insights
Latin America is a vibrant and diverse region offering numerous opportunities for businesses in 2023. With its growing economies, expanding middle class, and increasing digital adoption, the region is attracting global attention. However, doing business in Latin America also comes with its unique set of challenges. Here’s a comprehensive look at the key insights for doing business to Latin America in 2023.
This article provides essential insights for companies considering operations in Latin America. We’ll examine economic conditions, cultural considerations, legal frameworks, and practical tips for success.
Economic Landscape in 2023
Latin America’s economy shows promising signs of recovery after recent global challenges. The region’s GDP growth projection stands at 2.3% for 2023. Several countries demonstrate particularly strong performance:
- Brazil remains the largest economy with stable growth
- Mexico benefits from nearshoring trends
- Colombia shows increasing foreign investment
- Chile maintains strong trade relationships
However, inflation remains a concern across many markets. Businesses must account for currency fluctuations in their financial planning. The region’s middle class continues to expand, creating new consumer markets.
The following are the most important events to monitor in LATAM:
- Brazil removes all fiscal anchors:
Brazil faces a critical juncture in its economic policy as the government considers significant fiscal reforms. Our analysis suggests several potential scenarios:
Base Case Scenario (Most Likely)
- The government will modify current fiscal rules to permit increased public spending
- New spending limitations will still maintain some annual growth constraints
- Policy changes will aim to balance social needs with financial stability
Downside Risk Scenario
- Complete abandonment of spending controls under President Lula’s administration
- Potential consequences include:
- Significant currency depreciation
- Increased sovereign debt risk
- Accelerated timeline for austerity measures
- Possible tax hikes during current administration
Implications for Investors
These fiscal policy changes carry important considerations:
- Market Volatility: Expect fluctuations in Brazilian assets
- Debt Sustainability: Monitor debt-to-GDP trajectory closely
- Policy Response: Watch for central bank reactions to currency moves
- Investment Climate: Assess impact on business confidence
Regional Context
Brazil’s decisions may influence neighboring countries:
- Argentina faces its own fiscal challenges
- Colombia maintains relatively stable policies
- Chile balances social spending with fiscal responsibility
Recommended Actions
Businesses and investors should:
- Increase monitoring of Brazilian legislative developments
- Stress-test financial models for various policy outcomes
- Diversify regional exposure where possible
- Engage local experts for ground-level insights
- LATAM concentrates emerging-market (EM) investment:
The Global Investment Landscape
As economic uncertainty sweeps across major markets, Latin America is gaining attention as a relatively stable emerging market option. Several factors are driving this shift:
- US and Europe: Facing potential recessionary pressures
- China: Still grappling with economic restrictions
- MENA Region: Struggling with inflation and currency volatility
- Russia: Essentially off-limits for most global investors
Why LATAM Stands Out
With traditional emerging markets facing challenges, Latin America offers compelling advantages:
- Economic Stability: Many countries have strengthened fiscal policies
- Resource Wealth: Strong commodities sector provides a buffer
- Growing Markets: Expanding middle class across the region
- Strategic Location: Proximity to North American markets
Investment Potential
Latin America could potentially:
- Become the top FDI destination among emerging markets
- Rank just behind the US, Europe, and Developed Asia-Pacific in absolute investment dollars
- See increased capital flows into key sectors like:
- Renewable energy
- Technology
- Agriculture
- Infrastructure
Considerations for Investors
While opportunities exist, prudent investors should:
- Monitor political developments in key markets
- Assess currency risk management strategies
- Diversify across countries and sectors
- Partner with local experts for market entry
- Nearshoring doubles Mexico’s FDI:
Mexico has emerged as the prime beneficiary of global supply chain restructuring. As companies shift production from Asia to serve North American markets more efficiently, Mexico’s strategic advantages position it for unprecedented foreign investment growth.
Projected FDI Impact
Our analysis reveals two compelling scenarios for 2023:
Upside Case (Most Likely)
- Foreign direct investment could double compared to 2022 levels
- Manufacturing sector capacity would expand significantly
- Job creation would accelerate across industrial corridors
- Rising wages would fuel domestic consumer spending
Base Case (Still Strong Growth)
- Even without doubling, FDI inflows would hit record highs
- Steady expansion in key industries like automotive and electronics
- Gradual improvements in employment and productivity
The Nearshoring Advantage
Mexico’s competitive edge includes:
- Geographic proximity to US markets (reducing shipping costs/times)
- USMCA trade agreement providing stable trade rules
- Growing skilled workforce in manufacturing hubs
- Cost competitiveness versus Asian alternatives
- Established industrial clusters with proven supply chains
Sector-Specific Opportunities
Investment is flowing into:
- Automotive (electric vehicle components)
- Aerospace (precision manufacturing)
- Electronics (consumer tech and semiconductors)
- Medical devices (labor-cost-sensitive production)
Why Optimism Remains High
While doubling FDI would represent an extraordinary outcome, Mexico’s nearshoring fundamentals remain strong regardless:
- Companies continue announcing new facilities
- Existing manufacturers are expanding operations
- Infrastructure improvements underway
- Government incentives attracting multinationals
- USMCA trade dispute is settled:
President López Obrador (AMLO) has maintained a firm stance on Mexico’s energy policies, creating ongoing tensions with USMCA partners. The current administration’s protectionist measures have:
- Prioritized state-owned CFE and Pemex
- Created barriers for foreign renewable energy companies
- Sparked formal USMCA dispute consultations in 2022
Why 2024 Could Bring Unexpected Changes
Despite AMLO’s historical resistance, several factors might force policy adjustments:
Economic Pressure
- Potential USMCA sanctions could cost Mexico billions
- Investor confidence in manufacturing sectors at risk
- Supply chain reliability concerns for nearshoring operations
Political Calculus
- 2024 elections approaching
- Need to maintain US cooperation on migration, security
- Growing domestic business community pressure
Renewable Energy Imperatives
- Mexico falling behind clean energy targets
- International climate commitments
- Corporate demand for clean power solutions
The Compliance Question
While AMLO insists current policies comply with USMCA Chapter 8 (Investment), legal experts note:
- Energy sector restrictions may violate national treatment provisions
- Recent Supreme Court rulings challenge reform constitutionality
- US and Canada maintain strong legal positions
Potential Resolution Pathways
A settlement could involve:
- Gradual market opening in renewable energy generation
- Protected transition periods for state enterprises
- New bidding mechanisms for private participation
- Joint investment programs in clean energy infrastructure
Market Implications of a Deal
Should Mexico compromise, expect:
✅ Surge in cross-border energy investment
✅ Accelerated renewable project development
✅ Improved manufacturing competitiveness
✅ Strengthened USMCA credibility
- Substantial easing of Venezuela’s sanctions:
Venezuela’s economic survival hangs in the balance as US sanctions continue to:
- Cripple oil production (output remains at 25% of 2015 levels)
- Block access to international financial systems
- Prevent vital energy sector investments
- Exacerbate humanitarian crises through import restrictions
The Path to Sanctions Relief
Washington maintains clear conditions for easing restrictions:
Political Requirements
• Credible negotiations with opposition leaders
• Concrete steps toward free elections
• Release of political prisoners
• Restoration of democratic institutionsEconomic Conditions
• Demonstrated anti-corruption measures
• Transparent oil revenue management
• IMF engagement on economic reformsWhy Optimism Remains Cautious
Despite recent diplomatic openings, key obstacles remain:
- Maduro’s repeated failures to honor past agreements
- Deep mistrust between government and opposition
- Divided international opinion on engagement strategy
- Election year politics in the US
The Potential Economic Windfall
Should sanctions substantially ease, Venezuela could see:
Oil Sector Revival
- Immediate 500,000 bpd production increase
- $10B+ in deferred maintenance investments
- Partnership opportunities with Chevron, Repsol
Macroeconomic Stabilization
- Access to frozen $3B in international reserves
- Gradual reintegration into SWIFT system
- Inflation reduction from current 360% levels
Humanitarian Impact
- Improved food/medicine imports
- Return of international aid organizations
- Slow reversal of 7.7 million emigration crisis
Regional Stability Considerations
Successful negotiations would:
- Reduce migration pressures on neighbors
- Stabilize Caribbean energy supplies
- Set precedent for crisis diplomacy
- Counterbalance Russian/Chinese influence
- Chile’s new constitutional rewrite:
Chile stands at a pivotal moment as President Gabriel Boric’s administration revives constitutional reform efforts. After voters rejected two previous proposals (2022 and 2023), the government now pursues a third attempt—this time through Congress rather than a constituent assembly.
Why This Process Matters More
Unlike targeted reforms, this rewrite aims to:
- Redefine economic foundations (potentially altering investment rules)
- Expand social rights (with fiscal implications)
- Reshape institutions (impacting governance stability)
The Risks of Prolonged Uncertainty
A multi-year rewrite process could:
- Freeze critical investments as businesses await new rules
- Delay pension and tax reforms needed for growth
- Maintain credit rating pressures (currently BBB with negative outlook)
- Revive market volatility seen during past attempts
Key Differences From Previous Attempts
This effort differs in three crucial ways:
- Congress-led drafting (more moderate than citizen assemblies)
- Piecemeal approval (articles voted separately)
- Tighter deadlines (12-18 month timeline proposed)
Economic Model in the Crosshairs
The debate centers on whether the new text will:
✅ Preserve Chile’s market-friendly reputation
⚠️ Dilute property rights and contract enforcement
⚠️ Expand state intervention in key sectorsInvestor Implications
Potential outcomes include:
- Best case: Clarified rules with moderate social reforms
- Worst case: Radical changes prompting capital flight
- Most likely: Mixed bag maintaining some uncertainty
- Castillo’s impeachment:
President Pedro Castillo clings to power amid mounting challenges:
- 5 impeachment attempts survived since 2021
- Approval at just 19% (IPSOS, November 2023)
- Ongoing corruption probes involving 3 cabinet ministers
The Impeachment Equation
Castillo’s survival depends on three crumbling pillars:
1. Party Support
Peru Libre’s patience wears thin as:- 40% of party members now favor resignation
- Key allies demand cabinet reshuffles
- Rural base fractures over unfulfilled promises
2. Public Sentiment
Mass protests now target both president and Congress, creating volatile conditions where:- 68% support early elections (CPI poll)
- Lima’s business elite demands stability
- Mining regions threaten production stoppages
3. Legal Landscape
The attorney general’s office now investigates:- Alleged corruption in highway contracts
- Suspicious pardons for convicted allies
- Questionable military promotions
The Boluarte Factor
Should Castillo fall, Vice President Dina Boluarte would inherit:
✅ Opportunities:- Clean slate with international creditors
- Chance to technocratic governance
⚠️ Challenges:
- No congressional majority (fragmented legislature)
- Immediate pressure for snap elections
- Potential military interference
Market Time Bomb
A sudden transition would likely trigger:
- Sol depreciation (already lost 6% in 2023)
- Credit downgrades (S&P’s BBB rating at risk)
- Mining disruptions (30% of GDP exposed)
Regional Domino Effect
Peru’s crisis could:
- Strengthen anti-establishment movements in Colombia
- Delay Andean trade integration
- Empower China’s mediation role
With Peru’s sol trading at record lows and copper production stagnating, Castillo’s fate may hinge less on political maneuvering and more on whether Peru’s institutions can withstand another shock. The coming months will test whether democracy or instability prevails in the Andes’ economic powerhouse.
- President Lasso is ousted:
President Guillermo Lasso rode to victory in 2021 as Ecuador’s first conservative leader in over a decade, promising:
- Market-friendly reforms
- Foreign investment incentives
- Austerity measures to curb deficits
Yet two years in, his administration hangs by a thread.
Mounting Threats to Stability
1. Structural Challenges
- Congressional Gridlock: Opposition controls 90 of 137 Assembly seats
- Social Unrest: June 2022 protests paralyzed oil production (costing $80M/day)
- Security Crisis: Homicides doubled since 2021 (26 per 100k)
2. The Impeachment Sword
The Constitution allows removal for:
✅ “Serious political crisis” (vague clause)
✅ Failure to enact budget (used against Correa allies)Lasso narrowly survived a May 2023 attempt 80-52, but:
- 12 more votes would trigger early elections
- Indigenous groups vow new protests
3. Economic Tinderbox
Key vulnerabilities:- Dollarization at Risk: Reserves cover just 60% of monetary base
- Oil Dependency: 30% of revenues from crude (production declining)
- China Debt Overhang: $5B owed to Chinese creditors
The Ouster Scenario
If impeached or forced to resign, expect:
Immediate Impacts
✔️ Constitutional succession (VP Alfredo Borrero takes power)
✔️ 90-day window for new electionsLonger Consequences
⚠️ Policy paralysis during transition
⚠️ Capital flight (investors recall 2000 banking crisis)
⚠️ Trade disruption (30% of exports to regional partners)Regional Spillover Risks
Ecuador’s instability could:
- Disrupt Andean Community supply chains
- Exacerbate migration flows to Colombia/Peru
- Embolden anti-market forces in Chile’s constitutional process
The Silver Linings
Some shock absorbers exist:
- Stronger institutions than Peru’s
- Central Bank autonomy preserved
- $6.5B IMF program backstop
Verdict: A Ticking Clock
While Lasso’s technocratic team has stabilized some macroeconomic indicators, the political math looks increasingly unfavorable. With 62% disapproval (CEDATOS, August 2023) and bond spreads over 1,200 basis points, Ecuador faces either gradual erosion of governability or sudden institutional rupture. The coming months will determine whether this oil-producing nation becomes Latin America’s next governance cautionary tale—or manages to thread the needle between democratic stability and economic reform.
- CKF wins Argentina election: Although we do not expect ex-President Cristina Fernandez de Kirchner (CFK) to run for president in Argentina’s 2023 election, we cannot rule out this event, particularly given President Alberto Fernandez’s dwindling popularity. A win from CFK would likely lead to a local default and a refusal to repay the International Monetary Fund, provoking a steep ARS devaluation and stoking hyperinflation.
- Right-wing outsider wins Argentina election: Our view is that a moderate Peronist is likely to win the 2023 election; however, if Argentina experiences dual debt and currency crises next year, with inflation nearing triple digits, the likelihood that Argentines could seek to elect an outsider figure, such as Javier Milei, is high. Milei has vowed that, if elected, he would implement “shock therapy,” ending money printing and curbing government spending, a move that would seek to address Argentina’s macroeconomic imbalances but would also likely unleash protests throughout the country.
Key Industries for Investment
Certain sectors offer particularly strong opportunities in 2023:
- Renewable Energy: Many countries prioritize sustainable development
- Technology Services: Digital transformation accelerates across industries
- Agriculture: Global demand supports export growth
- Manufacturing: Competitive labor costs attract foreign companies
- Tourism: Post-pandemic recovery creates new opportunities
These industries benefit from government incentives in various countries. Companies should research specific national policies before entering markets.
Cultural Considerations
Understanding local business culture is critical for success in Latin America. Key aspects to consider include:
- Relationship building takes priority over immediate transactions
- Business meetings often include personal conversation
- Hierarchy remains important in organizational structures
- Time perception may differ from Western expectations
- Negotiations typically involve multiple stages
Building trust requires in-person interactions when possible. Digital communication works well for follow-up but shouldn’t replace relationship building.
Legal and Regulatory Environment
Navigating Latin America’s legal systems presents challenges for foreign businesses. Important considerations include:
Taxation: Complex systems vary significantly between countries
Labor Laws: Strong protections exist for local employees
Import Regulations: Requirements differ for each market
Business Structures: Options range from subsidiaries to joint ventures
Working with local legal experts is essential. Many countries offer special economic zones with favorable conditions for foreign investors.
Market Entry Strategies
Companies should carefully evaluate their approach to entering Latin American markets. Common strategies include:
- Exporting: Lower risk but limited market presence
- Licensing: Allows local partners to handle operations
- Joint Ventures: Shares risk with established local firms
- Wholly Owned Subsidiaries: Provides full control but higher risk
The best approach depends on industry, resources, and long-term goals. Many successful companies start with pilot projects before full-scale investment.
Digital Transformation
Latin America’s digital landscape offers significant opportunities:
- Internet penetration reaches 75% of the population
- Mobile banking adoption grows rapidly
- E-commerce expands across all consumer sectors
- Digital payment systems become more sophisticated
Businesses should incorporate digital strategies into their market plans. Local platforms often outperform global alternatives in some markets.
Risk Management
Operating in Latin America requires careful risk assessment. Companies should consider:
- Political stability in target markets
- Currency exchange volatility
- Supply chain reliability
- Intellectual property protection
- Cybersecurity threats
Developing contingency plans helps mitigate potential challenges. Insurance products specifically designed for emerging markets can provide additional protection.
Success Stories
Several multinational companies demonstrate effective strategies in Latin America:
Mercado Libre built the region’s leading e-commerce platform
Natura &Co expanded successfully from Brazil to global markets
Cemex maintains leadership in construction materials
SoftBank invested heavily in regional tech startups
These examples show how understanding local conditions creates competitive advantages. Adaptation to regional preferences is a common success factor.
Future Outlook
Latin America’s long-term prospects remain positive despite short-term challenges. Key trends to watch include:
- Increased regional economic integration
- Growing focus on sustainability
- Continued digital adoption
- Evolving trade relationships
- Infrastructure development
Businesses establishing operations now will benefit from first-mover advantages. The region’s young population ensures ongoing market growth.
Practical Tips for Success
Based on current conditions, we recommend these steps for entering Latin American markets:
- Conduct thorough market research
- Visit target countries personally
- Build relationships with local partners
- Adapt products to local preferences
- Invest in local talent development
- Maintain flexibility in operations
- Monitor regulatory changes closely
Companies that combine global expertise with local knowledge achieve the best results. Patience and persistence are essential virtues in these markets.
Conclusion
Doing business in Latin America offers significant rewards for prepared companies. The region’s economic recovery, growing consumer base, and improving business environment create attractive conditions.
Success requires understanding complex cultural, legal, and economic factors. Businesses should approach expansion with careful planning and local partnerships. With the right strategy, Latin America can become a cornerstone of global operations.
The 2023 landscape presents both challenges and opportunities. Companies that navigate these carefully will find Latin America a rewarding market for long-term growth.
Useful links:
https://www.oecd.org/latin-america/
https://www.worldbank.org/en/region/lac
https://www.imf.org/en/Countries/LAC
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