Key Takeaways:

The green transition: A trigger for change for Latin America in 2024
1. Latin America's clean energy and lithium resources offer a pathway for economic growth through a green transition.
The green transition: A trigger for change for Latin America in 2024
2. Despite challenges, countries like Argentina, Colombia and Chile are set for growth driven by renewable energy and mining investments.
The green transition: A trigger for change for Latin America in 2024
3. Investing in green sectors could reduce emissions and boost formal employment, highlighting the benefits of sustainability in Latin America.

Home to the cleanest electricity matrix in the world and enviable global lithium reserves, Latin America could boost economic growth and employment through its green transition, if the governments of the region are willing.

With a large part of its energy demand met by renewables, and annual inflation that is projected to drop to 3.8%, Latin America begins a crucial year with estimates of 2.3% growth in 2024, according to data from the World Bank. It points out in its report that although the effects of monetary restriction will continue to impact growth in the short term, its impact will gradually reduce. As inflation declines, central banks could lower interest rates, thereby reducing obstacles to increased investment.

Slow but sure recovery

As always, the global context and political alternation in Latin America play a fundamental role in shaping the future of the region. The arrival of new governments towards the end of 2023 and the presidential pre-campaigns in the region have put the green transition at the centre of the conversation as a very important factor that could trigger growth.

Argentina, for example, is exploring the production of low-emission hydrogen with investments of more than 90 billion dollars. In addition to establishing a favourable regulatory framework, this could also potentially generate an estimated 82,000 new jobs. This supports the International Monetary Fund’s estimates that Argentina will have a year of strong economic growth of up to 5% in 2025.

Both Colombia and Chile also appear to be at the beginning of a growth trajectory over the next 12 months that would reach 3% and 2.3% respectively next year. Both countries are protagonists of the wind and solar panorama in Latin America that has seen an increase in investments in this sector year after year.

Weakened by the slowdown in the United States, Mexico's growth is expected to be 2.6% in 2024. However, its economy will remain dynamic. This is thanks to nearshoring and maquila (a vehicle for Mexican factories owned by foreign businesses that permits duty-free and tariff-free imports of raw materials, machinery and equipment) which provide opportunities to companies in search of more favourable supply chain environments. All this while we await the election of its new president in the middle of the year.

Supported by increased mining and green hydrogen production, Peru is also likely to recover from the 2023 contraction, with estimated growth of 2.5% in 2024.

Central American countries are also at a crucial moment of energy integration that could trigger multiple projects in the electricity sector, directly impacting growth, which according to the World Bank would be around 3.7%.

Green transition

A factor that could trigger growth and employment in Latin America is the further development of renewable energies if the governments of the region are willing. This being said, the region is already making positive advancements in this area; a recent report conducted by the International Energy Agency stated that “Fossil fuels account for around two-thirds of the region’s energy mix, considerably lower than the 80% global average, thanks to the 60% share of renewables in electricity generation. Hydropower alone accounts for 45% of electricity supply in the region.” According to my conversations with RSM Partners in Central America, electrical integration plans in Latin America are gaining more and more momentum, thereby generating opportunities for local and international companies.

In addition, the region houses, between Argentina, Bolivia, Brazil, Chile and Mexico, an enviable lithium reserve. The production of this mineral, key to electric cars, is still in its early stages, although Chile is already showing promise in this area and Argentina is not far behind.

It is no surprise that at RSM we see broad possibilities for the implementation of ESG – Environmental, Social and Governance - strategies that create lasting value and trust through sustainability in the region. According to the Organisation for Economic Co-operation and Development (OECD)'s Latin American Economic Outlook 2023, “In a scenario where investments in green sectors increase by 3 percentage points annually, additional net job creation could reach 10.5% by 2030” - this includes a forecasted increase in green/sustainability-focused jobs across many sectors such as sustainable food manufacturing, construction, transport, and commerce.

Climate change and armed conflicts around the world promise to cause serious disruptions in the global supply chain. The attacks on the Red Sea (consequently affecting the Suez Canal) and the low water level with which the Panama Canal currently operates will force governments and companies to assume their role to build a more sustainable world and create new alternatives. It is no coincidence that Latin America is currently making million-dollar investments in the construction of dry canals that allow for the reactivation of trade between countries, opening opportunities for the generation of new infrastructure, employment and well-being.

Latin America has great opportunities ahead and our RSM professionals are standing by to help companies in the region embrace these and move forward with confidence in this ever-changing world.
 

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