In Eco-political analysis

On February 25th, 2022, the forecasting lens for Latin America was struck by a black swan event, the full-scale invasion of Ukraine by Russia. Why a war in eastern Europe could materially impact Latin America speaks to the breadth and depth of the global reaction to Russia’s aggression. The world is practically unanimous (China included) in condemning Russia’s attack on a sovereign nation and has mounted a compelling economic counterattack, design to punish Russia’s elite, logistically isolate Russia, and cripple the world’s 11th largest economy.

The attack on Ukraine, and the ripple effects of sanctions, adds to a considerable list of challenges facing Latin American economies at present. Though the worst of the COVID virus may be in the past for the region, the economic and political hangovers of extended quarantines represent considerable headwinds for the region’s recovery. In almost every election of 2021, an anti-incumbent mood among Latin American voters led to the replacement or downgrade of governing parties. The disproportionate cost of quarantines on the working poor and middle classes has further divided societies and limits the rebound of mass consumer spending. The rapid adoption of digital commerce has upended several industries that may never recover, presenting a new challenge to policy makers. More recently, the supply-chain shocks impacting trade between Asia and the Americas has brought painful inflation to the region, prompting quick increases in interest rates, further dampening the prospect of recovery.

AMI surveyed Latin American business leaders in October 2021 and a strong majority anticipated even higher levels of growth in their businesses for 2022 versus 2021, in spite of last year being a rebound year for more than 80% of them. Today, their optimism is dimmer.

Hence the importance to take a sang-froid and fresh look at the region right now. As we have made a habit of doing at the beginning of each year, our most senior practice directors have broken down the region into the good, the bad and the ugly — a simplistic but hopefully insightful segmenting of opportunity and risk for our clients and wider readership.

The Good

Latin America Outlook: Conventional energy

Conventional energy production & export

Steadily rising energy prices took an upward leap when Russia invaded. Elevated prices threaten global growth, but they are a welcome boon to energy exporters, including: Colombia, Mexico, Brazil, Venezuela, Ecuador, Trinidad & Tobago, Bolivia, Argentina, and Peru, as well as emerging producers Guyana and Suriname. Though public opinion in Latin America is gradually embracing a shift towards green energy, policy makers continue to favor conventional energy which governments depend upon for tax revenue and price subsidize to lessen the impact of fuel costs on their transportation-hungry economies.

Right now, every government in Latin America is strapped for cash after sales tax revenues crashed during quarantines and expensive transfer policies were needed to save the business sector, large and small as well as stave off the starvation of millions deprived of their informal employment by stay-at-home mandates. With the exceptions of Ecuador and Venezuela, Latin America’s energy producers are not restricted by OPEC production caps, so the race is on to leverage today’s windfall price levels in oil, gas, and coal into much needed revenue. For most producers in the region, tweaking production levels upwards hastily can only be done with the imported expertise of energy consulting, technology and service companies. 2022 will be a great year for Houston and Calgary and other energy services exporters that tend to the needs of state-owned oil and gas companies around the world.

Latin America 2022 Outlook: Electric vehicle industry mineral production

Electric Vehicle Industry Mineral Production

Regardless of where Latin America stands on energy transition, the global automobile industry has fully embraced the shift towards electric vehicles, if for no other reason than to grab some of the stock price mojo thus far monopolized by Tesla, the world’s 6th most valuable company at the time of publishing this article and worth about the same as the 10 largest car companies in the world combined. Charging a fleet of millions of EVs will require a re-wiring of entire countries as power stations are built as prolifically as gas stations, each hard-wired to the grid with copper and other industrial metals. The construction of tomorrows EV infrastructure will take 10-20 years, helping to sustain key metal prices at record levels for years to come.

As long as governments do not smother this opportunity with heavy taxes and burdensome regulations, the following countries stand to benefit given their hefty reserves of copper, lithium, nickel, iron, aluminum, cobalt, phosphorus & graphite: Peru, Chile, Brazil, Bolivia, Argentina, Mexico, Panama, Cuba, and Jamaica.

Latin America 2022 Outlook: Digital economy

Digital Economy

Many sectors were caught flat-footed in Latin America during the pandemic when their customers were mandated to stay at home and their retail points-of-sale were ordered shut. In spite of equipment, logistic and payment obstacles and shortages, Latin America’s digital economy sprang to life, shifting from a luxury to a necessity for all. The ability to sell online and delivery quickly to customers became survival skill sets for so many businesses. Many failed to make the transition but others accelerated the transformation of their business and today are thriving. What is more, the pandemic-fueled digital revolution opened new opportunities for Latin American-born businesses to spring to life, financed by an invigorated venture capital industry that managed to keep growing in 2020 and 2021.

Latin America’s digital revolution goes far beyond e-commerce. Latin America’s rapid adoption of smartphones (estimated at 75% of urban adults) means that phone-based apps drive the customer user experience of a number of industries that just five years ago looked completely different including: transportation, grocery shopping, media consumption, telecommunications, gaming, travel, and banking, to name a few. B2B selling, invoicing and delivery is also increasingly online. Even government services are increasingly provided via phone-based apps. The companies that provide the infrastructure, software and services behind digitization will continue to thrive in Latin America, regardless of political risk, rising inflation, and other macro-challenges.

Latin America Outlook: Net food exporters

Net Food Exporters

Since late 2019 when agricultural prices hit a multi-year low, food prices have steadily increased and represent a large portion of today’s elevated inflation phenomena. Grain prices will further rise as Russian supply is sanctioned or challenged by logistical issues. High oil prices also induce greater reliance on ethanol fuel, further underpinning grain prices. For most countries around the world, high food prices are a burden. Not so for Brazil, Argentina, Chile, Peru, and Ecuador, Latin America’s largest net-exporters of agri-food. Rising food prices and logistics bottlenecks are not a flash in the pan but a trend that should remain in place for at least a few more years.

Latin America 2022 Outlook Logistics


As the world re-opens after COVID, the increase in demand for all sorts of commodities has strained the transportation industry and skyrocketed shipping costs. The maritime transport sector, which has long suffered from low profits, enjoyed its most profitable year in decades in 2021. Cross border shipping is rebounding quickly as supply chains gear up to meet the global demand ignited by the almost 20% expansion of the money supply, engineered by central banks in response to the economic calamity of COVID.

At the domestic level inside Latin America, the rapid rise of e-commerce, estimated to have grown close to 40% in 2020 alone, has suddenly made logistics a sexy industry, with record profits and flashy marketing. The average ticket price of a single e-commerce delivery tumbled as online purchases shifted from computers to take-out dinner. Most asset heavy logistics players were ill-prepared to service this cost sensitive demand, which opened up opportunities for local start-ups to enter the last-mile delivery space. Latin America’s most laudable unicorn, Rappi, was built to service this need and today is worth close to US$7 billion.

The logistics industry is enjoying record demand but also challenged by disruptive new business models that threaten to up-end the industry’s leadership in several logistics segments. That makes it a very exciting industry to watch in 2022.

The Bad

Latin America Outlook - Political interference

Political Interference in Regulated Industries

Latin American governments failed to protect the health and economic welfare of its citizens through the course of the pandemic, resulting in the highest death and infection levels and worst economic downturn of any region in the world. Voters have not forgotten the blunder and arrogance of their leaders when they go to the polls. Anti-incumbency has brought to power untested and ideologically anti-establishment executive leadership in Peru and Chile and may similarly unseat pro-business administrations in Bogotá and Brasília in 2022. Though more centrist legislative branches may prevent the passage of truly damaging laws, taxes or constitutional reforms, these ideologically bent new presidencies do have the power to alter regulations and stifle investment in the process, as AMLO in Mexico has so clearly demonstrated.

Coal producers in Colombia, utilities in Chile, gold miners in Peru, infrastructure concessionaires in Brazil, renewable energy projects in Mexico… the list goes on of capital-intensive, regulatory-sensitive sectors that are vulnerable to interference by the fresh new lineup of politicians whose lack of governing experience and academia-fostered ideals make them at best inept, and at worst, reckless sources of risk.

Importantly, the risk of political interference is not a simple left-right political ideology problem. More often than ideology, the specter of financial interests plays a role in shaping the vagaries of new regulations, which may be designed to enrich a political cabal as much as they are designed to protect any social ideal. For that reason, any analysis of political risk must look beyond the platitudes of elected officials to understand the identities and motives of stakeholders at play in the back rooms where regulations are truly crafted.

Mass Consumer Products

In a survey conducted by AMI in late 2021, 70% of households in Latin America were still not earning as much as they did two years ago before the pandemic began. Another 20% had barely recovered pre-pandemic income levels and the top 5% were well ahead of their pre-COVID income levels. While Latin American economies are clearly recouping lost income, the majority of Latin American consumers are still struggling.

For purveyors of basic consumer products from food to clothing, to medicine, the damaged purchasing power of their customer base is an even bigger problem in 2022 given the price inflation of many of the ingredients and components that go into their products. If they try to pass on their increased input costs to their Latin American customers, demand will drop as consumers switch to value and otherwise inferior brands or forgo the purchase altogether. For many producers of consumer goods, 2022 sales will grow but profits will decline.

The Ugly

Latin America Outlook Niche retail

Niche Retail

The retail footprint in Latin America is close to 1 square foot per capita versus 23 square feet in the US and 25 square feet in China. Retail density is an important consideration when predicting the future of brick and mortar in an era of rising e-commerce sales. The COVID quarantines in Latin America created at least 50 million new e-commerce customers, who in spite of lacking a credit card or even a bank account, found a way to purchase their staples online. Necessity obliged these nascent digital consumers to overcome the obstacles and fears that had stymied their online buying in the past. Once a person realizes they can buy food online, then they will try just about anything. If fulfillment is reliable, then the breadth of products they buy online quickly grows.

When lockdowns ended and all retail shops re-opened, mass retailers (groceries, department stores, hardware stores, convenience stores) all rebounded healthfully. That was not the case for niche retailers, who occupy a very sparse footprint in Latin America. Think of a specialty sports store like a golfing equipment shop or a fly-fishing store or a rare bookstore, a middle eastern rug boutique, etc. At best, fewer than three stores of such specialization can be found in a city of ten million people in Latin America. Why spend an hour fighting traffic to arrive at such a rare retail gem only to find it is out of stock of the product you seek. Instead, it is much easier to search for and buy the niche product online. The retail sector overall in Latin America continues to grow but niche product retail will never come back after the disruption of COVID lockdowns.

Latin America Outlook - Reform agenda

Reform Agenda

The political hangover from the mismanagement and tragic impact of COVID and lockdowns in Latin America has produced an anti-incumbency bent among voters. Mis characterized as a shift to the left, the electoral mood also includes shifts to the right or center (Dominican Republic, Ecuador, Argentina). The important political changes in a post-COVID environment are seen at the executive level as most legislatures remain broadly mixed and centrist in make-up. The executive branch matters in Latin America because it drives the reform agenda. The newest round of presidential leaders in the region, elected in 2021 and 2022, seem determined to reverse reforms or drive them in a direction that will repel, not attract investors.

In Chile, the godfather of economic reform, both the constitutional re-writing process and the newly elected President Boric administration promise to change some of the fundamental underpinnings of Chile’s neoliberal economy. The dominant role and legal rights of the private sector in education, utilities, transportation and underground resources are at risk. In Brazil, the hard-fought reforms engineered by a centrist congress and Finance Minister Guedes may be weakened by the next government elected in 2022. Colombia is likely to elect its first left wing populist President, Gustavo Petro, who openly derides many of the pro-investment rules that govern Colombia. President Castillo in Peru has tempered his ambitions to shift Peru leftward, but his government is filled with inexperienced ideologues who will do their best to further the burden of regulation on the country’s thriving private sector, all in the name of fairness. With one of the largest informal economies in Latin America (70% of employment), over regulation in Peru tends to drive businesses underground, rather than reform them.

The pace and direction of reform in these countries threaten to emulate that of AMLO’s government in Mexico where promising energy sector reforms were undone, an award-winning airport project was canceled, and political interference in general has led to an estimated $100bn+ of capital flight. A generation of reform progress, wealth creation, and institution building in Mexico has been seriously weakened by only four years of reckless and naïve governance by the Morena party. Unlike Mexico, South America’s newest batch of populists do not enjoy majority control of their respective legislative bodies, which will limit the damage they can do.

The few bright lights of Latin American reform are too few and too small to counter the aforementioned negative trend. In Argentina, 2021 midterm elections have taken the wind out of the sails of a Peronist government obsessed with managing the economy at every level. IMF negotiations that are underway, combined with skyrocketing fuel costs, may finally lead to the removal of costly fuel subsidies, but that would be a very small victory in a country where a long list of reforms needs tackling. In Ecuador, President Lasso’s reform agenda which he quickly unveiled after assuming office got investors very excited. However, Lasso’s political capital has quickly shrunk as the reality of governing with a combative congress led to early battles and several mistakes. The one bright star is the Dominican Republic, where President Abinader has promised and largely delivered a more transparent and pro-investor regulatory and legal climate than any of his predecessors. But the DR is small, less than 1% of regional GDP. One bright star that is so small will not light the way through a region where the reform mood has darkened.

More to Analyze

There is a lot more that can be analyzed in an article like this but hopefully there is enough here to help you re-think your Latin American business plans in 2022 and beyond.

Let us know how AMI can help you better understand your market potential in Latin America, the competitive landscape and the regulatory and political risks that your business faces this year and next.

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