Argentina presents investment and trade opportunities, particularly in agriculture, energy, health, infrastructure, information technology, and mining. However, economic uncertainty, interventionist policies, high inflation, and persistent economic stagnation have prevented the country from maximizing its potential. The economy fell into recession in 2018, the same year then-President Mauricio Macri signed a three-year $57 billion Stand-By Arrangement (SBA) with the International Monetary Fund (IMF). President Alberto Fernandez and Vice President Cristina Fernandez de Kirchner’s (CFK) took office on December 10, 2019, and reversed fiscal austerity measures, suspended the IMF program, and declared public debt levels unsustainable.
In September 2020, Argentina restructured $100 billion in foreign and locally issued sovereign debt owed to international and local private creditors. Together, these transactions provide short-term financial relief by clearing principal payments until 2024. Unable to access international capital markets, the government relied on Central Bank money printing to finance the deficit, further fueling inflation. Although Argentina’s economy rebounded 10.3 percent in 2021, offsetting a 10 percent decline in 2020, the economy remains below pre-recession levels. In 2021, the Argentine peso (official rate) depreciated 17 percent, inflation reached 50.9 percent, and the poverty rate reached 37.3 percent.
Even as the pandemic receded and economic activity rebounded, the government cited increased poverty and high inflation as reasons to continue, and even expand, price controls, capital controls, and foreign trade controls. Agricultural and food exports such as beef, soy, and flour were frequent targets for government intervention. Beginning in May 2021, the government introduced bans and other limits on beef exports to address increasing domestic prices. However, the government also implemented incentives for exporters and investors in other industries. It eliminated export taxes for specific businesses and industries, including small and medium sized enterprises; auto and automotive parts exports over 2020 volumes; and information technology service exports from companies enrolled in the knowledge-based economy promotion regime. There were also investment promotion incentives in key export sectors such as agriculture, forestry, hydrocarbons, manufacturing, and mining.
The high cost of capital affected the level of investments in developing renewable energy projects, despite the potential for both wind and solar power. In an effort to expand production of oil and natural gas, the current administration provides benefits to the fossil fuel industry that impact the cost-competitiveness of renewable energy technologies. The government has encouraged the use of biofuels and electric vehicles. A proposed Law for the Promotion of Sustainable Mobility includes incentives and 20-year timelines to promote the use of technologies with less environmental impact in transportation.
After the first COVID-19 case was confirmed in Argentina in March 2020, the country imposed a strict nationwide quarantine that became one of the longest in the world. Argentina reopened its borders to tourists and non-residents on November 21, 2021. Hotel and lodging, travel and tourism, and entertainment activities have reopened, although many businesses went bankrupt during the shutdown. Most of the pandemic-related economic relief measures were phased out during 2021.
Both domestic and foreign companies frequently point to a high and unpredictable tax burden and rigid labor laws as obstacles to further investment in Argentina. In 2021, Argentina ranked 73 out of 132 countries evaluated in the Global Innovation Index, which is an indicator of a country’s ability to innovate, based on the premise that innovation is a driver of a nation’s economic growth and prosperity. In the latest Transparency International Corruption Perceptions Index (CPI), Argentina ranked 96 out of 180 countries in 2021, dropping 18 places compared to 2020.
As a Southern Common Market (MERCOSUR) member, Argentina signed a free trade and investment agreement with the European Union (EU) in June 2019. Argentina has not yet ratified the agreement. During 2021 there was little progress on trade negotiations with South Korea, Singapore, and Canada. Argentina ratified the WTO Trade Facilitation Agreement on January 22, 2018. Argentina and the United States continue to expand bilateral commercial and economic cooperation to improve and facilitate public-private ties and communication on trade, investment, energy, and infrastructure issues, including market access and intellectual property rights. More than 265 U.S. companies operate in Argentina, and the United States continues to be the top investor in Argentina with more than USD $8.7 billion (stock) of foreign direct investment as of 2020.
Brazil is the second largest economy in the Western Hemisphere behind the United States, and the twelfth largest economy in the world (in nominal terms) according to the World Bank. The United Nations Conference on Trade and Development (UNCTAD) named Brazil the seventh largest destination for global foreign direct investment (FDI) flows in 2021 with inflows of $58 billion, an increase of 133percent in comparison to 2020 but still below pre-pandemic levels (in 2019, inflows totaled $65.8 billion). In recent years, Brazil has received more than half of South America’s total amount of incoming FDI, and the United States is a major foreign investor in Brazil. According to Brazilian Central Bank (BCB) measurements, U.S. stock was 24 percent ($123.9 billion) of all FDI in Brazil as of the end of 2020, the largest single-country stock by ultimate beneficial owner (UBO), while International Monetary Fund (IMF) measurements assessed the United States had the second largest single-country stock of FDI by UBO, representing 18.7 percent of all FDI in Brazil ($105 billion) and second only to the Netherlands’ 19.9 percent ($112.5 billion). The Government of Brazil (GoB) prioritized attracting private investment in its infrastructure and energy sectors during 2018 and 2019. The COVID-19 pandemic in 2020 delayed planned privatization efforts and despite government efforts to resume in 2021, economic and political conditions hampered the process.
The Brazilian economy resumed growth in 2017, ending the deepest and longest recession in Brazil’s modern history. However, after three years of modest recovery, Brazil entered a recession following the onset of the global coronavirus pandemic in 2020. The country’s Gross Domestic Product (GDP) increased 4.6 percent in 2021, in comparison to a 4.1 percent contraction in 2020. As of February 2022, analysts had forecasted 0.3 percent 2022 GDP growth. The unemployment rate was 11.1 percent at the end of 2021, with over one-quarter of the labor force unemployed or underutilized. The nominal budget deficit stood at 4.4 percent of GDP ($72.4 billion) in 2021, and is projected to rise to 6.8 percent by the end of 2022 according to Brazilian government estimates. Brazil’s debt-to-GDP ratio reached 89.4 percent in 2020 and fell to around 82 percent by the end of 2021. The National Treasury projections show the debt-to-GDP ratio rising to 86.7 percent by the end of 2022, while the Independent Financial Institution (IFI) of Brazil’s Senate projects an 84.8 percent debt-to-GDP ratio. The BCB increased its target for the benchmark Selic interest rate from 2 percent at the end of 2020 to 9.25 percent at the end of 2021, and 11.75 percent in March 2022. The BCB’s Monetary Committee (COPOM) anticipates raising the Selic rate to 12.25 percent before the end of 2022.
President Bolsonaro took office on January 1, 2019, and in that same year signed a much-needed pension system reform into law and made additional economic reforms a top priority. Bolsonaro and his economic team outlined an agenda of further reforms to simplify Brazil’s complex tax system and complicated code of labor laws in the country, but the legislative agenda in 2020 was largely consumed by the government’s response to the COVID-19 pandemic. In 2021, the Brazilian government passed a major forex regulatory framework and strengthened the Central Bank’s autonomy in executing its mandate. The government also passed a variety of new regulatory frameworks in transportation and energy sectors, including a major reform of the natural gas market. In addition, the government passed a law seeking to improve the ease of doing business as well as advance the privatization of its major state-owned enterprise Electrobras.
Brazil’s official investment promotion strategy prioritizes the automobile manufacturing, renewable energy, life sciences, oil and gas, and infrastructure sectors. Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors; however, there are foreign investment restrictions in the health, mass media, telecommunications, aerospace, rural property, and maritime sectors. The Brazilian congress is considering legislation to liberalize restrictions on foreign ownership of rural property.
Analysts contend that high transportation and labor costs, low domestic productivity, and ongoing political uncertainties hamper investment in Brazil. Foreign investors also cite concerns over poor existing infrastructure, rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil.
With the second highest GDP per capita in Latin America (behind Uruguay), Chile has historically enjoyed among the highest levels of stability and prosperity in the region. However, widespread civil unrest broke out throughout the country in 2019 in protest of the government’s handling of the economy and perceived systemic inequality. Pursuant to a political accord, Chile held a plebiscite in October 2020 in which citizens chose to redraft the constitution. Uncertainty about the outcome of the redrafting process may impact investment. Due to Chile’s solid macroeconomic policy framework, the country boasts one of the strongest sovereign bond ratings in Latin America, which has provided fiscal space for the Chilean government to respond to the economic contraction resulting from the COVID-19 pandemic through stimulus packages and other measures. As a result, Chile’s economic growth in 2021 was, according to the Central Bank’s latest estimation, between 11.5 percent and 12 percent. The same institution forecasts Chile’s economic growth in 2022 will be in the range of 1 to 2 percent due largely to the gradual elimination of COVID-19 economic stimulus programs.
Chile has successfully attracted large amounts of Foreign Direct Investment (FDI) despite its relatively small domestic market. The country’s market-oriented policies have created significant opportunities for foreign investors to participate in the country’s economic growth. Chile has a sound legal framework and there is general respect for private property rights. Sectors that attract significant FDI include mining, finance/insurance, energy, telecommunications, chemical manufacturing, and wholesale trade. Mineral, hydrocarbon, and fossil fuel deposits within Chilean territory are restricted from foreign ownership, but companies may enter into contracts with the government to extract these resources. Corruption exists in Chile but on a much smaller scale than in most Latin American countries, ranking 27 – along with the United States – out of 180 countries worldwide and second in Latin America in Transparency International’s 2021 Corruption Perceptions Index.
Although Chile is an attractive destination for foreign investment, challenges remain. Legislative and constitutional reforms proposed in response to the social unrest and the pandemic have generated concerns about the future government policies on property rights, rule of law, tax structure, the role of government in the economy, and many other issues. Importantly, the legislation enabling the constitutional reform process requires that the new constitution must respect Chile’s character as a democratic republic, its judicial sentences, and its international treaties (including the U.S.-Chile Free Trade Agreement). Despite a general respect for intellectual property (IP) rights, Chile has not fully complied with its IP obligations set forth in the U.S.-Chile FTA and remains on the U.S. Trade Representative (USTR) Special 301 Report for not adequately enforcing IP rights. Environmental permitting processes, indigenous consultation requirements, and cumbersome court proceedings have made large project approvals increasingly time consuming and unpredictable, especially in cases with political sensitivities. The current administration has stated its willingness to continue attracting foreign investment.
With improving security conditions in metropolitan areas, a market of 50 million people, an abundance of natural resources, and an educated and growing middle-class, Colombia continues to be an attractive destination for foreign investment in Latin America. Colombia ranked 67 out of 190 countries in the “Ease of Doing Business” index of the World Bank’s 2020 Doing Business Report (most recent report).
The Colombian economy grew by 10.6 percent in 2021, the largest increase in gross domestic product (GDP) since the statistical authority started keeping records in 1975. This followed a 6.8 percent collapse in 2020 due to the negative effects of the pandemic and lower oil prices, the first economic contraction in more than two decades. In July 2021, rating agencies Fitch and Standard & Poor’s (S&P) downgraded Colombia below investment grade status, citing the increasing fiscal deficit (7.1 percent of GDP for 2021) as the main reason for the downgrade. The Colombian Government passed a tax reform that entered into effect in January 2022, the Social Investment Law, that seeks to reactivate the economy, generate employment, and contribute to the fiscal stability of the country.
Colombia’s legal and regulatory systems are generally transparent and consistent with international norms. The country has a comprehensive legal framework for business and foreign direct investment (FDI). The 2012 U.S.-Colombia Trade Promotion Agreement (CTPA) has strengthened bilateral trade and investment. Colombia’s dispute settlement mechanisms have improved through the CTPA and several international conventions and treaties. Weaknesses include protection of intellectual property rights (IPR), as Colombia has yet to implement certain IPR-related provisions of the CTPA. Colombia became the 37th member of the Organization for Economic Cooperation and Development (OECD) in 2020, bringing the obligation to adhere to OECD norms and standards in economic operations.
The Colombian government has made a concerted effort to develop efficient capital markets, attract investment, and create jobs. Restrictions on foreign ownership in specific sectors still exist. FDI inflows increased 4.8 percent from 2020 to 2021, with 67 percent of the 2021 inflow dedicated to the extractives sector. Roughly half of the Colombian workforce in metropolitan areas is employed in the informal economy, a share that increases to four-fifths in rural areas. In 2021, the unemployment rate was 13.7 percent with 3.4 million people unemployed. The employed population reached 21.6 million, an increase of 0.9 percent compared to 2020.
Since the 2016 peace agreement between the government and the Revolutionary Armed Forces of Colombia (FARC), Colombia has experienced a significant decrease in terrorist activity. Several powerful narco-criminal operations still pose threats to commercial activity and investment, especially in rural zones outside of government control.
Corruption remains a significant challenge. The Colombian government continues to work on improving its business climate, but U.S. and other foreign investors continue to voice complaints about non-tariff, regulatory, and bureaucratic barriers to trade, investment, and market access at the national, regional, and municipal levels. Stakeholders express concern that some regulatory rulings in Colombia target specific companies, resulting in an uneven playing field. Investors generally have access at all levels of the Colombian government, but cite a lack of effective and timely consultation with regulatory agencies in decisions that affect them. Investors also note concern regarding the national competition and regulatory authority’s (Superintendencia de Industria y Comercio, SIC) differing rulings for different companies on similar issues, and slow processing at some regulatory agencies, such as at food and drug regulator INVIMA.
The government of Ecuador under President Guillermo Lasso has adopted an ambitious economic reform agenda to drive investment. Private sector leaders in Ecuador emphasize the “Lasso Effect” in investment given the surge of optimism following the April 2021 election of the region’s most pro-business president in decades. “More Ecuador in the world and more of the world in Ecuador” – President Lasso’s key message for his presidency – includes the administration’s drive to attract $30 billion in investment over his four-year administration. Indeed, investment is growing – with both international and domestic companies searching for opportunities in this traditionally protectionist market that once garnered little attention compared to neighbors Colombia and Peru. Public-private partnerships (PPPs) are the cornerstone of the administration’s investment drive, including the establishment of a PPP Secretariat and the consolidation of PPP-related tax rules and regulations.
The Ecuadorian government is taking positive steps to improving fiscal stability. In September 2020, the International Monetary Fund approved a $6.5 billion, 27-month Extended Fund Facility for Ecuador and has already disbursed $4.8 billion to aid in economic stabilization and reform. The IMF program is in line with the government’s efforts to correct fiscal imbalances and to improve transparency and efficiency in public finance. The Ecuadorian Central Bank reported solid GDP growth of 4.2 percent in 2021 and projects 2.8 percent GDP growth in 2022. The Ecuadorian government remains committed to the sustainability of public finances and to continue a fiscal consolidation path. The fiscal deficit narrowed to 3.5 percent of GDP in 2021 (from over 7 percent of GDP in 2020) and is expected to narrow further to a little over 2 percent of GDP in 2022 due to improved tax collection, prudent public spending, and high oil prices.
Still, the Lasso administration faces major challenges to its investment agenda given the country’s long-term reputation as a high-risk country for investment. A challenging relationship with the National Assembly complicates the passage of needed economic reform legislation. While the administration’s November 2021 tax reform passed into law, the National Assembly soundly defeated President Lasso’s proposed investment promotion bill March 24. Serious budget deficits and the COVID-induced economic recession force the government to employ cost cutting measures and limit public investment. Ecuador has traditionally struggled to structure tenders and PPPs that are bankable, transparent, and competitive. This has discouraged private investment and attracted companies that lack a commitment to quality construction, accountability and transparency, environmental sustainability, and social inclusion. Corruption remains widespread, and Ecuador is ranked in the bottom half of countries surveyed for Transparency International’s Perceptions of Corruption Index. In addition, economic, commercial, and investment policies are subject to frequent changes and can increase the risks and costs of doing business in Ecuador.
Ecuador is a dollarized economy that has few limits on foreign investment or repatriation of profits, with the exception of a currency exit tax. It has a population that generally views the United States positively, and the Lasso Administration has expanded bilateral ties and significantly increased cooperation with the United States on a broad range of economic, security, political, and cultural issues.
Sectors of Interest to Foreign Investors
Petroleum and Gas: Per the 2008 Constitution, all subsurface resources belong to the state, and the petroleum sector is dominated by one state-owned enterprise (SOE) that cannot be privatized. Presidential Decree 95 published July 2021 opened private sector participation in oil exploration and production, with a goal to double oil production to 1 million barrels per day by 2028. The government can offer concessions of its refineries, sell off SOE gasoline stations, issue production-sharing contracts for oil exploration and exploitation, and prepare the SOE to be listed publicly on the stock market. The government maintained its consumer fuel subsidies since May 2020. The Ecuadorian government plans three oil field tenders in 2022 including concessions for Intracampos II and III and Block 60–Sacha. Given its declining and underdeveloped gas fields, the government plans to launch a tender for its Amistad offshore gas field. Additionally, the government announced potential tenders for a South-East concession, a private operator for the Esmeraldas refinery, and another to build and operate a new Euro 5 quality refinery.
Mining: The Ecuadorian government plans to accelerate mining development to increase revenues and diversify its economy. Presidential Decree 151, published August 2021, seeks to promote private sector participation in mining exploration and production. The decree allows for private sector investment, joint ventures with the state-owned mining enterprise (SOE); seeks to combat illegal mining; and establishes an Advisory Board to guide the government on best practices for responsible mining. The government announced plans to relaunch its mining cadastre in 2022, which was closed in 2018 due to irregularities in granting concessions. Ecuador has two operating mines — a gold mine operated by a Canadian company and a copper mine operated by a PRC-affiliated company. In 2021 the government issued two new mining concessions and announced plans to issue concessions for 12 additional strategic mining projects.
Electricity: Hydroelectric electricity accounts for 80 percent of Ecuador’s electricity generation. The PRC-built 1500 MW Coca Codo Sinclair (CCS) hydro power plant designed to provide 30 percent of Ecuador’s electricity has never generated its total installed power capacity and has been undergoing repairs since it began operating in 2016. CCS is also at risk from regressive erosion from the adjacent Coca River. The government contracted U.S. Army Corp of Engineers engineering services December 2021 to develop a solution to mitigate the river erosion. The government plans to develop wind, solar, hydro, biomass, biogas, geothermal, biofuel, combined cycle, and gas-fired electrical generation plants to diversify the energy matrix. It awarded a 200 MW solar tender and a 110 MW wind tender to private operators in 2020. It launched tenders for a 500 MW renewable energy block, a 400 MW combined cycle power plant, and a Northeast Interconnection transmission line in December 2021. The government imported its first LNG cargo December 2021 followed by a second shipment in February 2022.
Telecommunications: The Lasso administration is prioritizing rural connectivity as its major telecommunications policy. In mid-2021, the Ministry of Telecommunications (MINTEL) received from the International Telecommunication Union (ITU) the valuation report for the 2.5 GHz (gigahertz) and 700 MHz (megahertz) bands. The cost set is reserved. Likewise, MINTEL asked the ITU for the valuation of the 3.5 GHz, 850, 900 AWS and 1900 bands, which in turn will allow new players in the market and the future deployment of the fifth generation of technologies (5G). Three 5G technology connectivity tests have taken place in Ecuador, though there is no target date for the beginning of 5G commercial operations. Ecuador is due to renegotiate the concession contracts with the mobile network operators, which expire in 2023. New terms and conditions of the concession rights and use of frequencies are currently in the works including technical, legal, and regulatory requirements. The current negotiations do not include the frequency bands for the 5G network and are instead focused on the frequencies currently assigned to operators.
E–Commerce: In 2020, E-Commerce sales reached $2.3 billion record sales, an overnight digital transformation due to the pandemic. In 2021, according to Ecuador´s Electronic Commerce Chamber, E-Commerce sales grew 20 to 40 percent ($460 to $920 million, approximately). While many Ecuadorians are interested in purchasing online, they are limited in their ability to receive international shipments due to logistics and customs problems upon arrival in Ecuador. The Ministry of Production launched the National E-Commerce Strategy in 2021, establishing a framework for facilitating the digital transformation in the country. The strategy focuses on strengthening the current legal framework, capacity building for small and medium enterprises (SMEs), and improving logistics and payment gateway capabilities. Since the issuance of the National E-Commerce Strategy, no new regulations have entered into force to facilitate its application and the objectives set forth therein. The government is also promoting the development of the Andean Digital Agenda together with the other Andean Community countries, whose update will be promulgated in the first half of this year.
In 2021, Mexico was the United States’ second largest trading partner in goods and services. It remains one of our most important investment partners. Bilateral trade grew 482 percent from 1993-2020, and Mexico is the United States’ second largest export market. The United States is Mexico’s top source of foreign direct investment (FDI) with a stock of USD 184.9 billion (2020 per the International Monetary Fund’s Coordinated Direct Investment Survey).
The Mexican economy averaged 2.1 percent GDP growth from 1994 to 2021, contracted 8.3 percent in 2020 — its largest ever annual decline — and rebounded 5 percent in 2021. Exports surpassed pre-pandemic levels by five percent thanks to the reopening of the economy and employment recovery. Still, supply chain shortages in the manufacturing sector, the COVID-19 omicron variant, and increasing inflation caused the economic rebound to decelerate in the second half of 2021. Mexico’s conservative fiscal policy resulted in a primary deficit of 0.3 percent of GDP in 2021, and the public debt decreased to 50.1 percent from 51.7 percent of GDP in 2020. The newly appointed Central Bank of Mexico (or Banxico) governor committed to upholding the central bank’s independence. Inflation surpassed Banxico’s target of 3 percent ± 1 percent at 5.7 percent in 2021. The administration maintained its commitment to reducing bureaucratic spending to fund an ambitious social spending agenda and priority infrastructure projects, including the Dos Bocas Refinery and Maya Train.
The United States-Mexico-Canada Agreement (USMCA) entered into force July 1, 2020 with Mexico enacting legislation to implement it. Still, the Lopez Obrador administration has delayed issuance of key regulations across the economy, complicating the operating environment for telecommunications, financial services, and energy sectors. The Government of Mexico (GOM) considers the USMCA to be a driver of recovery from the COVID-19 economic crisis given its potential to attract more foreign direct investment (FDI) to Mexico.
Investors report the lack of a robust fiscal response to the COVID-19 crisis, regulatory unpredictability, a state-driven economic policy, and the shaky financial health of the state oil company Pemex have contributed to ongoing uncertainties. The three major ratings agencies (Fitch, Moody’s, and Standard and Poor’s) maintained their sovereign credit ratings for Mexico unchanged from their downgrades in 2020 (BBB-, Baa1, and BBB, lower medium investment grade, respectively). Moody’s downgraded Pemex’s credit rating by one step to Ba3 (non-investment) July 2021, while Fitch and S&P maintained their ratings (BB- and BBB, lower medium and non-investment grades, respectively. Banxico cut Mexico’s GDP growth expectations for 2022, to 2.4 from 3.2 percent, as did the International Monetary Fund (IMF) to 2.8 percent from the previous 4 percent estimate in October 2021. The IMF anticipates weaker domestic demand, ongoing high inflation levels as well as global supply chain disruptions in 2022 to continue impacting the economy. Moreover, uncertainty about contract enforcement, insecurity, informality, and corruption continue to hinder sustained Mexican economic growth. Recent efforts to reverse the 2013 energy reforms, including the March 2021 changes to the electricity law (found to not violate the constitution by the supreme court on April 7 but still subject to injunctions in lower courts), the May 2021 changes to the hydrocarbon law (also enjoined by Mexican courts), and the September 2021 constitutional amendment proposal prioritizing generation from the state-owned electric utility CFE, further increase uncertainty. These factors raise the cost of doing business in Mexico.
Panama’s investment climate is mixed. Over the last decade, Panama was one of the Western Hemisphere’s fastest growing economies. Its economic recovery from the COVID-19 pandemic is outpacing most other countries in the region, with a 15.3 percent growth rate in 2021 (after a contraction of 17.9 percent in 2020) and a projected growth rate of 7.8 percent for 2022, according to the World Bank. Panama also has one of the highest GDP per capita rates in the region and has several investment incentives, including a dollarized economy, a stable democratic government, the world’s second largest free trade zone, and 14 international free trade agreements. Although Panama’s market is small, with a population of just over 4 million, the Panama Canal provides a global trading hub with incentives for international trade. However, Panama’s structural deficiencies weigh down its investment climate with high levels of corruption, a reputation for government non-payment, a poorly educated workforce, a weak judicial system, and labor unrest. Panama’s presence on the Financial Action Task Force (FATF) grey list since June 2019 for systemic deficiencies in combatting money laundering and terrorist financing increases the risk of investing in Panama, notwithstanding the government’s ongoing efforts to increase financial transparency.
The government is eager for international investment and has several policies in place to attract foreign direct investment (FDI). As such, it continues to attract one of the highest rates of FDI in the region, with $4.6 billion in 2020, according to the U.S. Bureau of Economic Analysis. As of March 18, 2022, Panama’s sovereign debt rating remains investment grade, with ratings of Baa2 (Moody’s), BBB- (Fitch), and BBB (Standard & Poor’s with a negative outlook).
Panama’s high vaccination rates of 80 percent of the eligible population with at least one dose and 70 percent with at least two doses as of March 21 have contributed to its economic recovery. As the global economy rebounded, Panama’s services and infrastructure-reliant industries bounced back significantly in 2021. Sectors with the highest economic growth in 2021 included mining (148 percent increase), construction (29 percent), commerce (18 percent), industrial manufacturing (11 percent), and transportation, storage, and communications (11 percent). Panama ended 2021 with a year-on-year inflation rate variation of 2.6 percent, according to data from the National Institute of Statistics and Census (INEC).
The government’s assertion that it is climate-negative creates opportunities for economic growth, aided by laws 37, 44, and 45 that provide incentives to promote investment in clean energy sources, specifically wind, solar, hydroelectric, and biomass/biofuels.
Panama’s investment climate is threatened, however, by high government fiscal deficits, unemployment, and inequality. The pandemic resulted in government debt ballooning by $3 billion in 2021 to over $40 billion. The country’s debt-to-GDP ratio stands at around 64 percent, well above the 46 percent it stood at before the pandemic. Unemployment peaked at 18.5 percent in September 2020, a 20-year high, but has since fallen to 11.3 percent as of October 2021. Yet high levels of labor informality persist. Additionally, Panama is one of the most unequal countries in the world, with the 14th highest Gini Coefficient and a national poverty rate of 14 percent. The World Bank’s 2022 Global Economic Prospects Report and the World Economic Forum’s 2022 Global Risks Report noted that Panama should focus on inclusive economic growth and structural reforms to avoid economic stagnation and an employment crisis.
The Government of Peru’s (GOP’s) focus on sound fiscal management and macroeconomic fundamentals contributed to the country’s region-leading economic growth since 2002. The COVID-19 pandemic caused a severe economic contraction of over 11 percent in 2020, but Peru recovered with 13.3 percent GDP growth in 2021. Recent political instability (Peru has had four presidents since 2020) is restricting near-term growth, with consensus forecasts calling for approximately 3.0 percent GDP growth in 2022, and 2.9 percent in 2023. COVID-19 health costs and an economic stimulus package strained Peru’s fiscal accounts somewhat, but the deficit stabilized to 2.6 percent of GDP in 2021. The surge in spending, however, continues to impact Peru’s debt, which increased from 26.8 percent of GDP in 2019 to 36.1 percent in 2021. Net international reserves remain strong at $78.4 billion. Global price pressures moved inflation higher, to 4.0 percent in 2021, a significant spike from the 1.8 percent in 2020. Inflation continued in 2022, with Peru’s 12-month rate through March reaching 6.8 percent.
Along with recent political instability, corruption, and social conflict negatively impact Peru’s investment climate. As of April 1, 2022, President Castillo had appointed four cabinets since taking office in July 2021. Allegations of corruption plague the current and previous administrations. Transparency International ranked Peru 105th out of 180 countries in its 2021 Corruption Perceptions Index. Peru’s Ombudsman office reported 157 active social conflicts in the country as of February 2022. More than half of them (86) occurred in the mining sector, which represents 10 percent of Peru’s economic output. Citing political instability, including contentious relations between the administration and congress, and governance challenges, the three major credit rating agencies (Fitch, Moody’s, and S&P) downgraded Peru’s sovereign credit ratings since Castillo’s inauguration. All three, however, maintained Peru at investment grade.
Peru fosters an open investment environment, which includes strong protections for contract and property rights. Peru is well integrated in the global economy including with the United States through the United States-Peru Trade Promotion Agreement (PTPA), which entered into force in 2009. Peru’s investment promotion agency ProInversion seeks foreign investment in nearly all areas of the economy, particularly to support infrastructure. Prospective investors would benefit from seeking local legal counsel to navigate Peru’s complex bureaucracy. Private sector investment made up more than two-thirds of Peru’s total investment in 2021.