Latin America (“LatAm”) is home to a varied and lively economy, with many industries offering exciting opportunities for foreign investors.
Over the years, the manufacturing sector has emerged as a “key player” in the LatAm’s economic advancement and progress, attracting foreign investors. The purpose of the present article is to examine the potential of manufacturing in the region as a profitable investment opportunity, while also mentioning some challenges foreign investors may encounter when investing in the region´s manufacturing sector.
This is the third article in our series of articles on LatAm’s Key Industries: Opportunities for Foreign Investment. In the previous articles, we discussed the natural resources and agricultural sectors as investment hotspots for foreign investors.
According to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), the manufacturing sector in the region is on the rise, and it is expected to continue growing in the years to come. The increase in manufacturing can be attributed to many factors, including the growing middle class in many LatAm countries. The latter has led to a raise in the demand for goods produced by the manufacturing sector. Furthermore, the recent trend of reshoring (the practice of transferring a business operation that was moved overseas back to the country from which it was originally relocated) and nearshoring (the practice of transferring a business operation to a nearby country, especially in preference to a more distant one) are both contributing to the growth of the manufacturing sector in the region.
One of perhaps the most visible advantages of manufacturing in the region is the relatively low production costs. LatAm boast a large skilled workforce and comparatively low wages. The latter makes it an appealing destination for businesses seeking to lower production costs.
Secondly, LatAm is extremely rich in natural resources, with vast reserves of minerals, oil, and gas. These resources can be used as inputs for a diverse spectrum of manufacturing industries (e.g. construction, mining, etc.). The riches of natural resources is undoubtedly a huge advantage for manufacturers operating in the region, as it provides a reliable supply of raw materials necessary for production.
Thirdly, LatAm strategic location is another factor making LatAm an appealing destination for investment in manufacturing sector. The region is strategically located between North America, Europe and Asia, which allows easy access to major markets. Proximity to major markets reduces shipping costs and time, which is a huge advantage for manufacturers.
Moreover, LatAm boasts multiple free trade agreements (FTAs) with many countries, making it easier for manufacturers to export their products to many countries without major trade barriers.
Last but not least, government incentives! Multiple governments in the region offer a diverse spectrum of incentives for businesses investing in the manufacturing sector (e.g. subsidies, tax incentives, streamlined bureaucracy, establishment of special economic zones to promote manufacturing investment that offer diverse benefits, etc.).
On the other hand, the manufacturing sector in LatAm also entails some challenges that need to be considered and addressed by foreign investors. Many of the challenges that the manufacturing sector in the region is facing have already been mentioned and described in our previous articles related to other industries we have examined.
One of the most prominent challenges is the lack of infrastructure. As already discussed, the region has limited infrastructure, which can consequently affect transportation, logistics, etc. However, it is worth noting that most of the countries in the region are aware of this shortfall and are therefore investing heavily in improving their infrastructure. Moreover, the political instability in the region and the presence of corruption can be a real challenge for foreign investors.
In order for foreign investors to overcome the challenges, they need to develop successful strategies and approaches, and one of the most successful approaches is cooperation with domestic companies. Local companies may assist investors navigate the regulatory landscape as well as provide them with first-hand insights into the local market.
To finalize: Taking into consideration all the above-mentioned reasons, as well as others not listed here, it can be concluded that the manufacturing sector in LatAm represents a promising industry for foreign investors. Nevertheless, before deciding to invest in the manufacturing sector in the region, foreign investors must consider the region’s challenges and address them accordingly.
Stay tuned for more articles on the key industries in LatAm offering exciting opportunities for foreign investors.
