What are the biggest investment opportunities in Latin America?
Why is Latin America emerging as a profitable investment market?
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After a long period of recession, Latin America started to show signs of economic recovery in 2017, with some regions showing signs of accelerated growth. As a result, investor sentiment towards Latin America is slowly changing, and now many companies are expanding there, taking advantage of the opportunities that this group of countries has to offer.
At the same time, investors from North America and Europe alike are starting to consider Latin America when diversifying their portfolio, and we can even see an increase in the number of individual traders in the region, powered by the boost in financial education and the characteristics of the demographics.
FinTech is expanding
FinTech has become a massive phenomenon all over the world. Still, Latin America seems to be more receptive towards this trend, and there are currently more than 1,000 FinTech startups located here. Why? Because many people in Latin American countries still don’t have a bank account, and startups are targeting them. According to LAVCA, FinTech startups in Latin America received more funding than any other sector in 2015 and made up almost 30% of all IT investments.
Even Google contributed to growth in the region by selecting several startups for an accelerator program. Unfortunately, although there are many ambitious initiatives, the FinTech sector cannot grow by itself, which is why currently it relies on outside investors for early-stage financing.
Unlike traditional investing, impact investing is made to generate a positive impact on the world. Impact investors back companies not only because they have a profitable potential, but also because they can help society or the environment in some way. Latin America has reported considerable growth in this sector.
According to a survey called The Impact Investing Landscape in Latin America'' organized by the Aspen Network of Development Entrepreneurs, $4.7 billion in assets were explicitly allocated for impact investments in Latin America, of which $1.4 billion were deployed in 860 deals in 2016 and 2017. According to the same survey, Argentina was the leading destination for impact investments, and the most popular areas of investment were microfinance, agriculture, and healthcare.
One of the main reasons why Latin America has become such an attractive investment destination is that VC firms have acted as pioneers and encouraged others to tap into the potential of the region. Although Latin America isn’t exactly Silicon Valley and it still has a long way to go, closing early-stage deals has become more accessible and, according to a report from the Latin American Venture Capital Association, venture capitalists have closed deals worth $2.3 billion in 2016 and 4.3 billion in 2017. What’s more, a growing percentage of backed startups have started to invest themselves, either as angel investors or limited partners in funds.
Crowdfunding is on the rise
When VC investments are out of reach, people with an entrepreneurial spirit in Latin America still have the support of crowdfunding platforms. In the past years, this alternative lending option has become increasingly popular, especially among middle-class individuals.
Crowdfunding, which is already a common practice in the US, is a practice by which entrepreneurs gain small amounts of money from the users of fundraising platforms. In Latin America, where there are still some inequities in the way entrepreneurs access funds, crowdsourcing has become an excellent way to tip the scales and allow many innovative ideas to come to fruition.
Also read: The most valuable companies in Latin American
Why is Latin America emerging as a profitable investment market?
Looking at these numbers, many interested foreign investors may be wondering: why now? Why did we disregard Latin America for so many years and suddenly it’s on our radar? That is a complicated question and to answer it we need to look at all aspects for Latin America society. Some say that Latin American entrepreneurs are simply more creative. That, in a region that is still struggling with corruption, people have learned to adapt and be independent. However, the explanation is a little longer than that, and we also need to look at these factors:
Better education in the region
In the past decade and a half, the enrollment rate in higher education in Latin America has increased to 45%. Even in less developed regions with a more impoverished population, the higher education enrollment still increased to 25% in 13 years. As a result, people have become increasingly familiar with economic and financial notions. Of course, success in business isn’t conditioned by a bachelor’s degree.
Latin America has access to the Internet, and ambitious investors can also educate themselves, which has also led to an increase in the number of independent stocks and Forex traders. Compared to the trading regulations of the US market, Latin America is a bit different in terms of trading leverage and barriers to entry, but still, in the past years, more and more people have been using online resources to learn how to grow their wealth.
Latin America’s demographics favor innovation.
Latin America is made up of more countries, so there are regional economic fluctuations. However, it appears that all countries have something in common: the median age of the population. According to the latest data, the median age of Latin American people is 31 years old. This means a higher concentration of Millennials and Gen Z, who, statistically, are more inclined towards innovative ideas, experimentation, and appetite for investment.
Better talent for less
Since Latin America is still undergoing economic development, salaries are still pretty low: according to OECD data, the last eight countries in the world in terms of wages are in Lati America. This means that companies hire skilled talent at an affordable cost, and thus their projects become more achievable.
Although it has been neglected for decades, Latin America is now one of the most promising regions for investments, with a growing number of FinTech startups, VC investors, and independent traders. However, keep in mind that if you plan on investing or expanding a company in Latin America, first, it’s essential to study the regulatory environment and discover all the ways you can ensure continuity here.