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High Oil Prices And Mineral Demand Fuel Growth In Latin America

  • Manufacturing investment and trade expanded as supply chains diversified.
  • The region experienced GDP growth of 3.5%, outpacing the global rate of 3.2%.
  • High oil prices and demand for minerals powered growth in some countries.
  • Adoption of IT and artificial intelligence help to expand the services sector.
Latin America

Amid a challenging year for the global economy, which navigated inflation, conflict, climate-related extreme weather events and supply chain disruptions, Latin America and the Caribbean showed resilience in 2022.

While global GDP growth slowed from 6% in 2021 to 3.2% in 2022, the region achieved 3.5% growth in 2022, despite its two leading economies – Brazil and Mexico – expanding by 2.8% and 2.1%, respectively, according to IMF forecasts from October.

High oil prices powered some of the region’s top performers, including nascent oil-producing Guyana, which recorded 57.8% GDP growth after reaching a record 391,000 barrels per day (bpd) in September. In December the US energy company Hess Corporation announced that oil production in the country could reach 1.2m bpd by 2027.

Venezuela, for its part, experienced 6% growth in 2022 due to rising oil production, following negative growth in 2014-20 and 0.5% growth in 2021. High oil prices also helped to buoy Brazil’s and Mexico’s economies in 2022.

Beyond oil, a number of factors drove regional development, most notably the expansion of global and regional trade agreements, a burgeoning socio-environmental push to address climate change, rising demand for minerals used in clean energy generation and the adoption of emerging digital technologies.

Panama posted 7.5% growth in 2022, according to the IMF, as its services industry – which constitutes 75% of economic output – rebounded from the Covid-19 pandemic.

Several Caribbean nations also achieved significant GDP growth, including St Kitts and Nevis (9.8%), St Lucia (9.1%), Dominica (6%), the Dominican Republic (5.3%), and St Vincent and the Grenadines (5%).

Growing trade ties

The disruption of global supply chains in 2022, including capacity constraints, higher freight costs, labour shortages and port slowdowns, weighed heavily on the global economy, but Latin America and the Caribbean capitalised on the rise of the so-called China+1 strategy, whereby businesses and governments diversify their production capacity by setting up operations in other countries while maintaining a significant presence in China.

Moreover, the US-Mexico-Canada Agreement, signed in 2018 to replace the two-decade old North American Free Trade Agreement, began showing its value in bolstering trade between the three signatory countries.

After ranging between $30bn and $35bn in 2021, Mexico’s monthly imports to the US surged to all-time highs of between $37bn and $41bn in 2022.

Brazil-US trade reached a record $42.7bn per month in the first half of 2022 – a 43% increase from 2021, which also saw bilateral trade achieve a new record. In September the two countries signed a mutual recognition agreement that allows recognised Brazilian companies to accelerate export processes and bypass red tape.

At the same time, Chinese investment in Latin American manufacturing facilities, most notably in Mexico, surged in 2022 as the East Asian country attempted to skirt US tariffs and cut delivery costs to the US.

In October Latin America and the Caribbean was home to $5.3bn worth of Belt and Road Initiative projects, of which $2.2bn went to a light rail project in Guadalajara, Mexico.

In December 2021 the Community of Latin American and Caribbean States (CELAC), a bloc of 33 countries that includes regional heavyweights such as Argentina, Colombia and Mexico, signed the China-CELAC Joint Action Plan for Cooperation in Key Areas 2022-24, which covers a host of areas including infrastructure investment.

Meanwhile, several Latin American countries undertook other large-scale transport infrastructure projects to improve regional and international connectivity and trade.

One of the most ambitious, the Bioceanic Corridor, aims to connect Brazil’s Port of Santos on the Atlantic Ocean with Chile’s ports of Iquique and Antofagasta on the Pacific Ocean through a series of roads. Though the project is still years from completion, in February Paraguay’s government inaugurated the first stage of its part of the project, a 276-km dual carriageway from Carmelo Peralta, on the border with Brazil, to Loma Plata in the centre of the country.

At the beginning of 2023 Colombia and Venezuela opened a bridge that was built between the two countries in 2016 but previously never used, marking a step towards normalisation in bilateral relations.

Preparing for the green revolution

With the five-largest economies in the region now headed by leftist leaders after elections in Brazil, Chile and Colombia in 2022, a new “pink tide” appears to be reorienting the region’s economic focus towards the fight against climate change.

The impact of this shift hinges on how successfully leaders advance measures to conserve the Amazon rainforest, the world’s largest carbon sink.

Brazil’s newly elected President Luiz Inácio Lula de Silva made conserving the Amazon a central campaign promise, after illegal mining and logging activity during the presidency of his predecessor, Jair Bolsonaro, saw deforestation reach a 15-year high in 2022. President Lula’s top foreign policy adviser has called for an Amazon summit in 2023.

Conservations policies are increasingly backed by finance, as public and private sector actors collaborate to protect rainforests through green bonds that foster sustainable development in sectors such as agriculture, energy and technology.

Brazil’s Supreme Federal Court reactivated the Amazon Fund, the largest ever created for the preservation of forests. Valued at more than BRL3bn ($573m), the fund had been inactive for almost four years.

Earlier last year, Chile launched the world’s first sovereign sustainability-linked bond to incentivise climate-positive solutions by incorporating a number of environmental objectives, along with a series of penalties for issuers if they fail to meet their commitments.

The bonds are linked to the country’s twin goals: emitting no more than 95 tonnes of carbon dioxide equivalent by 2030 and producing 60% of electricity from renewable sources by 2032.

On the ground, small-scale projects in Latin America are using sustainable and regenerative agriculture techniques to fight deforestation and reduce carbon emissions and pollution.

In Peru, the World Wildlife Fund runs 10 fieldwork projects in the Madre de Dios region to promote regenerative agriculture techniques among local farmers. In addition, more than 200 farmers in the area are participating in the Alliance for Regenerative Ranching in the Peruvian Amazon, which aims to make ranching more sustainable by implementing an agro-ecological system that allows the soil to recover without undermining livestock productivity.

More sustainable commodities

Energy and mining, key sectors in Latin America and the Caribbean, were revitalised through investment in clean energy resources and the application of sustainable techniques in 2022.

Latin American nations are planning to scale up the production, consumption and export of so-called green hydrogen, which is generated from clean energy resources.

Argentina announced plans in June to invest $6bn in the province of Tierra del Fuego − located at the southernmost tip of South America − to develop a hydrogen and ammonium industry powered by wind and transform the country into a major exporter to Europe and Asia.

Brazil has similar ambitions and is seeking to leverage its position as the world’s second-largest producer of hydroelectric power, tapping its substantial wind and solar resources.


As a major producer of cobalt, copper, lithium and nickel, Latin America provides much of the raw material needed for the global clean energy revolution and stands to benefit from future demand for green technologies.

Roughly two-thirds of global lithium reserves are in Latin America, the vast majority of this in the Lithium Triangle which covers areas of Argentina, Bolivia and Chile. Brazil has 17% of global nickel reserves – both essential components for electric vehicle (EV) batteries.

On the consumer demand side, sales of EVs continue to double on an annual basis in Latin America. Some states in Mexico are encouraging EV adoption through subsidies or tax exemptions, including an exemption from an annual tax based on the vehicle’s value.

Digital transformation

While commodities have historically driven growth in the region, Latin American and Caribbean companies have adopted artificial intelligence (AI), cloud computing and blockchain technologies to sustain momentum on building more robust service sectors.

Some companies in the Caribbean, for instance, are harnessing information and communications technologies to enhance their tourism industries by integrating databases and analytics and collecting and analysing data with AI to build predictive models that can maximise customer bookings.

Jamaica was the first country in the region to adopt a national AI strategy, and Belize is in the process of developing one. Trinidad and Tobago is also exploring ways to use AI in its public sector, while Guyana sports an AI lab supported by US computer giant IBM.

Real estate companies, meanwhile, are turning to a suite of information technologies known broadly as property technology (proptech) to disrupt and streamline their markets and meet the housing needs of young people and businesses.

Proptech companies are part of the current real estate boom in Colombia, where supply is rapidly increasing but remains short of demand. La Haus and Habi, two Colombia proptech companies, recently raised $158m and $100m, respectively, part of which they plan to use to expand into other markets in Latin America, starting with Mexico.

Similar tools are enabling foreign investors to enter new markets through online platforms that specialise in vacation and short-term rental management in Mexico and allow owners to manage their properties with ease.

By Oxford Business Group

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