BU data snapshot: LATAM and the Caribbean
Amidst high-potential economic landscape, we might ask: What role does export credit play in the region? This is what Berne Union data has to say.
The Berne Union’s recent webinar, "Unlocking LATAM’s Potential: Insights and Collaboration," shed light on the trade and investment opportunities across Latin America (LATAM) and the Caribbean. The resource-rich south boasts an abundance of critical minerals, particularly copper and lithium, drawing investment in mining infrastructure and positioning the region as a pivotal player in the future of clean technologies. Meanwhile, in the north, Mexico is emerging as a key beneficiary of 'nearshoring,' attracting firms seeking to relocate manufacturing operations closer to the US market. Amidst this high-potential economic landscape, we might ask: What role does export credit play in the region? This is what Berne Union data has to say.
Introduction: Revitalising Investment
After a two-decade decline, foreign direct investment (FDI) in LATAM and the Caribbean has seen a turnaround. In each of the past two years, inflows have surpassed the USD 200bn mark, a feat not achieved since 20111, as activity in natural resources and the manufacturing industry increased.
LATAM and the Caribbean’s rich endowment of natural resources makes extractive industries, particularly mining, a key feature of the economy. The region holds roughly 40% of the world’s copper reserves - 24% of that being in Chile alone2 - and half of the world’s lithium reserves in the ‘lithium triangle’ of Argentina, Bolivia, and Chile3. Both are critical minerals for the transition to clean energy and give the region huge opportunity to leverage its position, as countries scramble to secure supply of these materials.
The region also has substantial fossil fuels reserves, with Venezuela, Brazil, and Guyana sitting on vast amounts of oil. As more FDI was directed towards fossil fuel projects in the region than solar or wind in 2022, for the first time in a decade, it is clear that LATAM governments aim to capitalise on these resources before they potentially become stranded assets in the shift to net-zero emissions.
Beyond natural resources, LATAM is also a burgeoning manufacturing hub. Brazil has a prominent manufacturing industry, and the momentum of ‘nearshoring’ is raising Mexico’s industrial profile. ‘Nearshoring’ has boosted FDI in Mexico, reaching USD 36.1 bn in 2023 - the highest since 2013 - with half of the investment in manufacturing, allowing deeper integration into global value chains.
The influence of both sectors in the region is further corroborated by Berne Union data. Over the past five years, longer-tenor4 cover provided by Berne Union members in natural resources and manufacturing totals more than any other sectors5 , at USD 16.5bn and USD 12.3bn, respectively. Additionally, as the two largest economies in the region, the influence of Brazil and Mexico (both of which rank within the top 10 for global inward FDI) on trade and investment flows is apparent. Together, they account for nearly half of the longer-tenor cover provided by Berne Union members in this region since 2019.
Compared to the global export credit insurance industry, the region has relatively more appetite for longer-tenor cover over short-term cover, which is an apparent feature of emerging and developing economies6. While short-term cover in the region has grown at a faster rate than the industry average in recent years, the data reveals a more intriguing dynamic in the uptake of medium-to-long-term export credit (MLT) and political risk and investment insurance (PRI).
Drivers of MLT in LATAM and the Caribbean
As of 2023, Berne Union members have MLT exposure of USD 66.2bn in LATAM and the Caribbean, ranking between East APAC (USD 86.7bn) and South Asia (USD 30.6bn). Over the last five years, flows of new MLT business have mirrored global patterns: a sharp drop in 2020 and gradually recovering since. Unlike the global MLT surge in 2023, however, LATAM and the Caribbean has stabilised at pre-pandemic levels, registering USD 12.6bn and USD 12.4bn in new business for 2022 and 2023. respectively.
As perhaps expected, Brazil (USD 17.1bn) and Mexico (8.9bn) have attracted the most new business in the past five years. Colombia (USD 5.6bn), Chile (USD 4.2bn), and Peru (3.7bn) follow closely behind, reflecting their economic weight in the region. Argentina, despite being the third largest economy, has been an exception. Since seeking IMF assistance in 2018 to avoid debt default, new business in Argentina has plummeted – from USD 1.5bn in 2018 to just USD 40m in 2023.
The natural resources sector is consistently the most supported in the region, accounting for a fifth of total new business since 2019, similar to the Russia & CIS region. Since 2019, LATAM and the Caribbean has attracted the most new business in this sector globally (USD 12.4 billion), outpacing Sub-Saharan Africa by USD 2bn. While the global trend in natural resources has been one of decline, the region has experienced an upward trend since 2020. As new business in this region surpassed all other regions in both 2022 and 2023, business does not seem to be drying up. This is largely driven by Brazil, with its rich natural resources including tin, iron ore, timber, and oil, which has attracted USD 7.4bn in new business since 2019 – ranking highest globally in this sector.
Figure 1: LATAM and the Caribbean new MLT commitments matrix (Sector & Obligor, 2023, USD bn)
As industry support for the natural resources sector has waned, support for renewable energy projects has increased globally. LATAM and the Caribbean, however, have not followed suit. Between 2019 and 2022, new business for renewable energy projects in the region captured only a 2% share of the total, averaging a USD 230m annually. There was more activity in 2023 as support jumped fourfold to USD 1bn, USD 832m of that in Mexico; but the region still lags behind others.
While natural resources dominate new business in the south, the Caribbean islands play a different role in the region’s economic landscape. The islands have been a popular destination for Berne Union member activity, particularly in the transportation sector. Over the last five years, new business in this sector has totalled USD 6bn, on par with manufacturing. Nearly half of this amount has been directed to the Caribbean, with substantial business in the Bahamas (USD 1.6 bn), Cayman Islands (USD 754m), and Trinidad & Tobago (USD 215m).
Manufacturing is another key industry in the MLT landscape. Activity in this sector remained steady at USD 1bn per year until 2022, but it doubled to USD 2bn in 2023 due to a surge in new business in Mexico, likely driven by ‘nearshoring’. The prominence of the manufacturing industry is more evident in PRI data, which will be analysed further on.
Private Insurer Pull
A notable feature of the region is the high presence of private insurers in the MLT market, or conversely, the lower presence of public providers, depending on perspective. With 37% of cover provided by private insurers in 20237 (30% on average over the past five years), the region boasts the highest private market share globally. In other regions, private insurers typically hold only 10-20% of the market. This trend perhaps reflects a lower risk perception compared to other emerging markets, which often rely more heavily on public sector providers.
LATAM and the Caribbean’s attractiveness to private insurers is further underscored by absolute value. Since 2019, the region has received USD 15.3bn in private insurer cover, ranking third behind North America and Europe, whilst only ranking sixth in total MLT support. If we consider multilateral support, LATAM and the Caribbean has the highest proportion of this support also at 10% over the last five years, with only Sub-Saharan Africa coming close at 9%. This was mainly due to liquidity support provided to banks during the pandemic, enabling businesses to cover their working capital needs.
The past decade has witnessed a significant shift in the types of entities receiving MLT support from Berne Union members in the region. In the mid-2010s, public buyers (sovereign and sub-sovereign) dominated the landscape, but there has been a marked movement towards private obligors (corporates, projects, and banks), with an exception in 2020 when public banks sought liquidity support during the pandemic. As such, corporate transactions have consistently taken the top spot, accounting for over 40% of the business done in the region each year. This aligns with most regions globally, with the exception of Sub-Saharan Africa and MENA, which tend to favour sovereign transactions.
Figure 2: New MLT commitments obligor share in LATAM and the Caribbean (2014-2023, %)
Manufacturing and Sustainability Boost PRI
LATAM and the Caribbean stands out for its strong appetite for PRI cover. Averaging USD 6.8bn in new cover annually since 2019, the region boasts the second-highest demand globally, trailing only East APAC. While global growth in PRI has been stagnant, LATAM and the Caribbean have seen an annualised growth rate of 18% since 2020, with new cover in 2023 surpassing 2019 levels—the only region to achieve this.
The sectoral landscape resembles the MLT market, but with manufacturing taking centre stage over natural resources. New cover in manufacturing has expanded rapidly, with significant levels in 2022 (USD 1.9bn) and 2023 (USD 1.7bn), primarily in Brazil, Mexico, and Colombia, highlighting the industry’s importance in these economies. Among emerging market regions, this performance trails only East APAC, a region unsurprisingly dominant due to its massive manufacturing base.
While Peru’s thriving mining industry (natural resources) has translated into consistent PRI cover (averaging USD 1bn annually since 2021) in the region, renewable energy has seen minimal uptake. However, this masks the clear push towards sustainability within the region. Ecuador’s significant increase in PRI cover (from a USD 67m average in 2019-2021 to a USD1 bn average in 2022-2023), is a result of the issuance of marine-conservation linked blue bonds. Whilst Mexico’s recent USD1.85 bn sustainable finance guarantee signifies a broader regional commitment to cleaner energy production and sustainable agricultural practices.
Unlocking Potential
The future looks bright for the region. According to research by BIS8, the region’s top industries - mining, agriculture, and manufacturing - are all among the top five industries when it comes to long-run increase in industry value added by artificial intelligence, due to their capital-intensive nature. Therefore, the region stands to benefit from huge productivity gains, but only if it can harness further investment into the region and build substantial infrastructure around its critical mineral resources.
1 UNCTAD
2 International Trade Administration
3 Atradius Economic Research – Critical minerals in LAC are key for energy transition
4 MLT export credit and political risk and investment insurance (PRI)
5 Disregarding the Other/Multiple sector
6 15% of cover extended to the region is under longer-tenor terms, compared to global share of 9%
7 Share does not include multilateral support
8 BIS – The impact of AI on output and inflation
