It is no secret that Latin American countries are in an endless battle to attract Foreign Direct Investment (FDI) and implementing strategies to help boost their development.
It is no secret that Latin American countries are in an endless battle to attract Foreign Direct Investment (FDI) and implementing strategies to help boost their development. Although each country has different social and political environments, most offer an exceptional work force and economic incentives which provide opportunities for investors and businesses. Understanding the local culture, regulations, processes and requirements is key in avoiding the risks when investing in this region.
Even though efforts have been made across the Americas, additional funds are needed to sustain growth and competitiveness, in addition to improvements in areas such as transport infrastructure and telecommunications. In order to achieve higher levels of productivity, many countries in Latin America have been working on several efforts that are projected to help the region become a solid competitor in the international investment market. Below are 8 of the most recent projects taking place:
Brazil’s latest payroll regulation changes will help the federal government to collect labor, social security, tax and fiscal information for employees around the country. Named e-Social, the project will unify information about the employment relationship of all workers and will require that employers transmit all information referring to their labor force via an online portal, streamlining the process of payroll reporting.
2. Pacific Alliance
In 2011, Peru, Chile, Colombia and Mexico created the Pacific Alliance, an initiative of political, economic and regional cooperation aimed at promoting larger growth, development and competitiveness of the countries’ economies through the free circulation of goods, services, capital and persons. To date the group has made progress in areas like: fiscal transparency, creation of infrastructure funds, deepening of free trades agreements, regulatory reforms and harmonization of rules and joint promotion of exports.
3. Energy Reform
Mexico’s government amended the country’s constitution to implement an Energy Reform aimed at opening the industry to allow the private sector to explore, develop and produce oil. The IMF estimates that the new legislation will cause a 13% reduction in electricity prices. It also estimated that the manufacturing industry will grow up to 3.6%, impacting the national GDP by 0.6%.
4. PIPE 2.0
Last April, the Colombian government launched the PIPE 2.0 Plan, an initiative aimed at boosting growth, development and generating investment in areas like educational, public infrastructure, urban and country housing, industrial production, tourism and mining. The plan is expected to create over 322k jobs, eliminate the gas surcharge of 8.9% for the industrial sector, and generate an increase of 3.2 to 3.5% in the Colombian economy.
5. Simplifying Business
Peru has developed a program to help simplify business processes in the country. It is now offering both foreign and national investors legal and tax stability agreements to stimulate private investment. These agreements guarantee that the statutes on income taxes, remittances, export promotion regimes, administrative and labor hiring procedures in effect at the time of the investment contract, remain unchanged for that investment for 10 years.
El Salvador became signatory No. 86 of the Convention on Mutual Administrative Assistance in Tax Matters in order to position the country internationally in compliance with the transparency standards on tax matters, and to also show that it is determined to accomplish greater economic and social growth and development.
7. Tackling Corruption
Latin American countries are working on several efforts to tackle corruption and improve their business environments. For example: Mexico’s Congress has already created a government-backed National Anti-Corruption System, in Argentina there are 50+ Bilateral Investment Treaties (BITs) in place to protect investments, and Paraguay is partnering with entities like the National Anti-Corruption Department and the World Bank to reduce corruption.
8. Trans-Oceanic Railway
Brazil launched a concession program to attract private investment worth 64 billion USD over five years to improve the South American country's roads, railways, airports, and harbor terminals. The plan includes a Trans-Oceanic Railway that is intended to link western Brazil with the Peruvian port of Pisco and open a new route to export Brazil's agricultural products.
According to the World Economic Forum, Latin American countries need to improve the functioning of institutions, the quality of infrastructure, the allocation of production factors, and strengthen the region’s skills, technology and innovation base in order to achieve greater prosperity.
Companies entering and operating in new markets are faced with challenges and risks. Having a local or regional partner with the necessary experience and know-how can help navigate through local complexities, mitigating risks and controlling costs. Local experts can assist with the setup, provide a single point of contact and take care of the non-core elements that keep the businesses moving as it grows internationally, allowing companies to focus on their main goal: selling its products and services.
As the leading global business provider in Latin America, TMF Group helps companies of all sizes with HR, payroll, accounting, tax compliance, corporate secretarial and structured finance services. Our local experts have experience and understanding of local regulation to help you remain compliant in this complex region. To learn more about the service we offer, click here to visit our services section.
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