By Bob Cook, Senior Vice President, Latin America, Site Selection Group
Latin America in 2020 has been a very strange year right? As the pandemic entered its early stages during the Spring, we saw investments being placed on hold by our clients considering Latin America (and elsewhere for that matter). In fact, the global impact of the Covid crisis has led to declining foreign direct investment (FDI) numbers across the board. Global FDI fell 49% during the first half of 2020 compared to the same period in 2019. Latin America and the Caribbean actually fared better than most parts of the world as FDI in the region fell only 25%– compared to 75% in the world’s developed countries, and 56% in North America. We would expect that these numbers will recover following the pandemic, but who really knows when the pandemic will be declared officially over.
Given that FDI was comparatively low the first half of this year, and considering that 2020 will most certainly be an anomaly, this article focuses primarily on 2019 data –which may very well provide a sense of what the Latin American world return to once the pandemic is declared over. With slower project activity this Summer, I spent a great deal of time studying global data as it compares to Latin America and have summarized some of it in this article.
Latin America remains a solid destination for manufacturing projects with a total production workforce exceeding 64 million persons, albeit more than half (56%) of that workforce is in two countries – Brazil and Mexico with another 19% in Colombia, Argentina and Chile combined. Wages for basic assembly workers in the region are globally competitive, ranging from 4.1% of US wages in the Dominican Republic to 48.9% in Costa Rica. The regional average production wage is around 18% of those in the US. Companies which may want to “dip their toe” in nearshore/offshore manufacturing in Latin America will be able to find shelter service providers who provide facilities, personnel, and logistics but allow you to control production or contract manufacturing firms who can manufacture products to your specifications. Both of these options will significantly reduce risk for the company seeking to expand operations to Latin America for the first time. Additionally, with some exceptions—most countries in the region have liberal investment policies which encourage foreign direct investment in the form of manufacturing and other activities.
But to see really where the private sector interest really lies, it is always instructive to look at inward investments for each country, particularly for greenfield projects (investments in new plants and equipment, as opposed to expansion of existing facilities). In 2019, Latin America and the Caribbean received over $112.3 B (USD) in foreign direct investment in the form of greenfield investments representing 13.3% of all global greenfield investments last year, a number which was 8% in 2018 and 9.5% in 2017. In fact, Argentina, Ecuador, Honduras and Belize were the only Latin American Countries that failed to capture a larger percentage of global FDI in 2019 versus the previous year, and none of these were dramatically lower than the previous year. As seen on the chart on the next page, Latin America has attracted an increased level of greenfield FDI for 3 consecutive years (2017-2019) and along with Africa, was the only other region in the world to achieve this feat. As happens every year, Mexico and Brazil remained the driving forces in Latin America by attracting more than half (52.2%) of the region’s greenfield investment in 2019.
As seen in the chart above, the region announced over 1,800 greenfield investments last year and similar to the total value of investments — Mexico and Brazil are the strongest drivers in the sheer number of new project investments, accounting for more than half (54.2%) of the total. We should note, however, that Chile, Colombia and Costa Rica have all seen healthy growth in new investment projects over the past 3 years with the latter receiving almost a doubling in the number of projects compared to the previous year.
Let’s now turn our attention to a few selected industry segments.
Automotive & Automotive Parts
Last year, the Latin American region exported over $52 billion in automotive parts to the United States, representing 44% of all car part imports to the country in 2019. Mexico represented more than 90% of these imports, but both Brazil and Honduras exported approximately $500 million or more in car parts last year, and have done so consistently for at least the past three years. About half of the parts coming from Brazil are engine, transmission and power train parts, but a substantial volume of brake systems and suspension parts also are produced there. For Honduras, there strength lies in making electrical and electronic car parts such as wiring harnesses.
In 2020, automotive production in Latin America will likely reach just over 7 million total units, with well over half (3.98 million units) coming from Mexico. Brazil is expected to reach over 2.9 million units; Argentina just over 300,000 units and over 100,000 units produced in Colombia. All major car companies have operations somewhere in Latin America, with most obviously being located in Mexico and Brazil. GM has production operations in both Colombia and Argentina, producing 3 different bus models and its subcompact the Spark in Colombia. Toyota produced approximately 126,000 vehicles last year in Argentina.
In 2019, Mexico continued its strong run in leading all of Latin America by attracting 758 total investments from automotive parts manufacturers, which represented 3 out of 4 investments made by this industry segment in the region last year. Brazil came in a distant second with 173 total projects and Argentina was third with 39 projects.
In research conducted by SSG conducted earlier this year, we identified 425 FDA registered establishments producing over 7,400 FDA registered medical devices in Latin America, more than 5,700 of which are manufactured in Mexico. Costa Rica comes in second in the region with over 650 registered devices made there. Costs Rica, however, has targeted the development of this sector (largely thru the creation of special economic zones and developing a highly qualified labor force) and by comparison, has tended to attract more sophisticated device manufacturers. More than 84% of the devices made there are FDA Class 2 or 3, while almost three-fourths (73%) of the devices produced in Mexico are FDA Class 2 or 3.
Last year, the United States imported an estimated $44 billion in medical devices from around the world, and approximately $10.28 billion (23.5%) of that came from Latin American countries. Almost 90% of these devices (by value) were produced in either Mexico ($7.19 B) or Costa Rica ($1.96B).
In terms of attracting investments from medical device companies, Costa Rica led the way in Latin America last year with 81 total projects followed by Mexico with 61 and 45 in Brazil. No other country in the region received even 10 such investments. Both Costa Rica and Mexico were among the top 10 countries globally in attracting medical device investment projects last year, ranking 8th and 9th respectively. Both countries also offer a wide range of support services including sterilization and contract manufacturing for almost every medical specialty from basic hospital supplies to sophisticated implantable devices.
Last year, US-based Microvention-Terumo expanded its operations in Costa Rica by adding 1,100 jobs a near doubling of its capacity in that country. The project, located in one of its special economic zones in Alajuela, produces minimally-invasive devices (stents, balloons, coils and flow diverters) which treat neurovascular diseases such as strokes and aneurysms.
Textiles / Cut & Sew
Countries in Latin America exported $14.3 B of apparel and related products to the United States in 2019 with about one-fourth (23.9%) of the region’s total coming from Mexico ($3.6 B) and another 20% ($2.9B) coming from Honduras. El Salvador, Nicaragua, and Guatemala contributed an additional $1.86 B, $1.81B and $1.46 B respectively in apparel product imports into the US.
While there were only 188 total investment projects in the sector in 2019, they were much more evenly spread across the region. As seen in the chart at the top of this section, Mexico, Brazil, Argentina, El Salvador and Colombia led the way in attracting investments in this sector. These five countries attracted over three-fourths of investment in Latin America for this sector last year.
Brands like Gildan, Hanes Lee/Wrangler, Sara Lee, and Dickies (among others) have a significant manufacturing presence in the region, often thru contract manufacturers.
Mexico and Brazil dominated investment from the aerospace sector last year, by attracting almost 90% of the 224 investment projects that went to Latin America from companies in the sector. The United States received $2.93 B in imports from Mexico last year, which was comprised of a variety of engine and other related aircraft components. More than two-thirds of the $2.75 B in imports from Brazil were completed aircrafts, primarily Embraer, the world’s third largest producer of aircraft behind Boeing and Airbus which focuses on the production of smaller regional jets. It should be noted, however, that this sector has been one of the hardest hit by the global pandemic, and Embraer recently announced that it would reduce its Brazilian workforce of approximately 16,000 by about 2,500. This follows massive layoffs by Boeing and Airbus during the pandemic of 16,000 and 15,000 employees respectively. The imports of aircraft and related parts are off 40% thru September as compared to the same nine-month period of 2019.
Contact Center/ BPO Projects
Site Selection Group works with both contact center/BPO as well as manufacturing clients, and Latin America has been a particularly good destination and we track the deals there fairly closely. Since the beginning of 2019 thru this point in 2020, we have observed 62 call center projects in the region that have created almost 40,000 jobs. We have found very good bi-lingual talent in a number of Latin American countries, and activity has been particularly strong in Costa Rica. That country has had at least 25 announcements (40% of the total for Latin America) and created over 11,000 new jobs during this timeframe, with Amazon adding approximately 2,000 jobs in each of the last two years there. Colombia comes in second for these types of jobs adding over 13,000 with only 8 projects, however, Teleperformance began establishing a targeted 10,000 “work from home” jobs there beginning earlier this year.
Covid has exposed some significant weaknesses in the way that most Latin American countries deal with pandemics and challenging events of any kind. Chile and French Guiana are the only two Latin American countries that have met or exceeded global Covid testing norms and 70% of Latin American countries (excluding the Caribbean) have exceeded the global Covid death rate of 165 persons per 1 million population, most of them significantly above this rate. Having said that, most Latin American countries are making legitimate attempts to control the spread of the virus by enacting policies that require masks and have ordered shutdowns/slowdowns of non-essential industries.