The 2024 electoral ‘super-cycle’ and business impacts in Latin America

The world is currently going through a huge geopolitical shift. 2024 is seeing an immense number of elections around the globe across all continents. In Latin America alone, six countries are holding (or have held) general elections – El Salvador, Panama, the Dominican Republic, Mexico, Venezuela, and Uruguay – all of which will influence the Latin American business environment.

The United States is also set to hold general elections on 5 November. The relationship between North and Latin America means the results of this election could significantly impact the security and economy of Latin American countries. Trade in services between the U.S. and Latin America (exports and imports) totalled US$100 billion in the first semester of 2023 alone (latest available trade figures) – so the effects of any future policy decisions will be far reaching. This represents a 19% increase from the same time period of the prior year, demonstrating the increasing connectivity of the Americas.

With the next few years potentially set to change dramatically from the outcome of these elections, let’s take a look at how they might impact the business landscape in Latin America, and what opportunities the future holds.

How will the elections affect Latin America?

Latin America is an extremely resilient region. It is accustomed to adjusting to dramatic shifts in political regimes, economic stressors, and natural disasters. While the natural reaction of potential foreign investors to widespread changes may be concern or hesitation, I believe there is a lot to be optimistic about when it comes to the business landscape.

Panama, as a key global market in LATAM, is a good example of this. Its central geographic location, access to the canal, and dollarised economy make it an attractive destination for foreign investors. José Raúl Mulino, Panama’s new president who took office this year, ran on a pro-business platform focused on driving tourism and improving infrastructure. I recently spoke with RSM’s Managing Partner in Panama, Julio Cruz on this topic. Julio noted that the new administration has appointed a record number of independent members and individuals from the private sector to both the cabinet and senate, signalling a commitment to incorporating new perspectives in policy and will hopefully inspire continued progress and innovation.

The U.S. is the largest investor in the region, and the most important trading partner of many Latin American markets. With regard to their upcoming presidential election, I do not believe that this dependence and connectivity is in jeopardy of changing dramatically in one election cycle; however, I do think that there are certain aspects of the US election that will have a more significant impact in Latin America.

First would be immigration policy. The US labour market is experiencing significant shortages, and depends on immigration to help fill those gaps. Without this labour, supply chain and costs could continue to increase in the U.S..

But the U.S. does not benefit from this alone; Latin American economies also depend on this labour exchange. A large percentage of the millions of Latin American immigrants (both documented and undocumented) working in the US send remittances back to their home country. Remittances make up about 5% of the GDP for Latin America and the Caribbean. In many cases, those remittances make up over 20% of the home country’s GDP. Should an administration crack down on immigration and close borders, it could have a negative impact on both sides, driving costs higher in the US due to lower production from labour loss, and decreasing remittances that many Latin American economies depend on.

The second critical factor would be any policies regarding China. If the US is de-risking itself from China, it may force key trading partners in Latin America to adjust to this. It is not likely that the US would approve imports of Chinese products manufactured in LATAM markets. Should this happen, markets with a heavy investment from China, like Mexico and Brazil, would bear the burden of adjustment.

Planning long-term with political uncertainty

While uncertainty is naturally a part of election cycles, it doesn’t always have a negative impact. In Mexico, for example, following Claudia Sheinbaum’s win, the administration announced a wave of new cabinet members and policy plans that have created a sense of optimism. Middle-market businesses should work with well-informed local advisors who understand the evolving policy to make sure they are taking advantage of new incentives, while also staying compliant.

The connectivity, cultural alignment, and geographic proximity of many Latin American Markets also makes it easy for middle-market companies to “regionalise” their strategy to minimise risk of disruption amidst political changes. For example, many middle-market businesses set up regional sales offices in markets like Central America where countries are separated by just a few hours by car. Taking advantage of a common language, common industries, and consumer habits, gives Latin America an advantage over other markets like Europe where the proximity exists, but cultural differences present more challenges.

The biggest challenges 2024 has for Latin America

One of the biggest challenges impacting global confidence and investment in Latin America is the political polarisation happening in many major markets across the region; Argentina, Colombia, and Perú, for example. This contention often sparks protests and civil unrest which can disrupt major industries. In many cases, regime changes represent huge shifts in political policy – each cycle, new presidents from the opposite end of the political spectrum take over and spend their first years undoing the previous administrations’ policies. Then, the next year they implement their own policies, and by the time the next election cycle occurs, the regimes change dramatically again and very little forward progress is actually made. There are dramatic pendulum swings that need to stabilise somewhere in the middle.

Another major challenge this year is the slowdown in economic growth. With several countries in recession, and others dealing with liquidity issues, most administrations should be focusing on fiscal discipline. The positive here is that this also means an emphasis on attracting growth and investment. The region needs to focus on forward progress and development, finding political middle ground amidst the polarisation, and attracting foreign investment.

The silver linings: Latin America’s future of opportunities

I believe that, despite the challenges and uncertainty, the Latin American region is poised to benefit significantly from investment of middle-market companies looking to diversify their supply chain. Regardless of the outcome of the 2024 US elections, global companies still have plenty of opportunities in the region with its young, skilled workforce, beneficial trade agreements, and geographic proximity. Innovation and productivity are two factors that will be critical to a business’ success. Organisations that have a culture of innovation, agility, and efficiency, will be in the best position to reap the benefits this region has to offer.

Additionally, with the US dollar is trading in its strongest position in a decade, Latin America has several markets, including Panama, Ecuador, and El Salvador, using US currency, presenting a unique opportunity. Some middle-market businesses may not have sophisticated currency hedging strategies and, therefore, looking to a dollarised economy in Latin America will always offer an advantage.

There is a lot to come in the years ahead for the Latin American region, but its resilient people will stand the tests to come, as they always do. While there are certainly some challenges on the way, the region is set for growth and exciting opportunities. 
 

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