Free Zones are leading the way in driving Latin America’s FDI resurrection

Latin America has been an attractive location for business expansion and nearshoring activities for many years. While FDI into the region was clobbered in 2020, recent data reflects a resilient comeback. According to UNCTAD, Latin America and the Caribbean have witnessed FDI inflows returning to near pre-pandemic levels. In 2021, FDI inflows and cross-board M&As reached US$147 billion with a 75% growth rate from 2020 to2021. Though still behind developed nation in-flows, companies are actively investing across the region and free zones present a compelling value proposition.

A Range of Advantageous Geographies & Streamlined Import & Export Processes

Free Zones located throughout Latin America including in Colombia, Costa Rica, the Dominican Republic, and El Salvador are strategically located and streamline the import and export process. One example is Colombia’s Parque Central Free Zone with close proximity to Rafael Núñez International Airport and ports around Cartagena allowing for direct routes in global trade networks and large-scale cargo movement. It also features abundant access to skilled labor in the region and strong public services infrastructure and transportation, making the expansion process easier. 

According to Daniel Gilchrist, Commercial and Projects Director of Parque Central Free Zone in Cartagena, Colombia, company operations in his Free Zone have increased by 10% in 2021 compared to a normal, pre-COVID-19 year. Parque Central’s growth has mainly been driven by companies exporting to (8% growth) and importing from (20% growth) the US via the zone’s proximity to the Port of Cartagena, where almost 60% of Colombia-US trade takes place. Mr. Gilchrist highlights that the logistics sector has gained the most traction during the pandemic, especially amid the global container crisis. His free zone has established distribution hubs for non-nationalized cargo to respond to local, Latin American, Caribbean, and US market needs across the logistics sector servicing industries as varied as construction, chemicals, agroindustry, automotive, and metalworking.

Free Zones Supporting Diverse Sectors Providing A Latin American Market Expansion Foothold

The companies are diverse, expanding from their headquarters in the US, Canada, Denmark, and Japan and including companies such as Terumo BCT, Lutron Electronics, Coloplast, and Baylis Medical, to name a few. New companies are considering greenfield investments with stand-alone facilities between 100,000 and 200,000 sq ft or smaller facilities between 15,0000 and 30,000 sq ft. La Lima Free Zone Commercial Manager, Carolina Umaña Corrales, sums up that her zone’s growth has been very positive as it continues to create options to attract new companies from various locations around the world.

Colombia and Costa Rica are not the only Latin American countries succeeding in attracting foreign direct investment. The Dominican Republic’s Free Zones have become an engine for the country’s economy and are spurring optimal nearshoring opportunities. Exports from the zones reached a sum of USD$5.9 billion in 2020 and were 45% higher during January-October 2021 y-o-y. Their top sectors continue to be dominated by medical devices and pharmaceuticals (30.7% of exports) with major investments from Medtronic, Fresenius Kabi, B. Braun, and Edwards Lifesciences. Other consistently successful and growing sectors include electric and electronic devices, tobacco, spirits, jewelry, textiles and apparel, outsourced services (BPO companies and call centers), and footwear.

76 new companies from North America, Europe, Asia, and the Dominican Republic have invested in the Free Zones from January-October 2021 with major export destinations of the US, Europe, and Latin America. The medical devices sector offers promising growth, as 7 of 10 of the largest companies in the sector already present in the Dominican Republic have announced plans to expand and/or move new products to their manufacturing plants in the country. With global attention on the country’s opportunities, the Dominican Republic continues to serve as a prime location for foreign business expansion. Latin America will continue to attract investment as foreign companies look for new expansion opportunities amidst geopolitical reshuffling due to ongoing US-China trade tensions and the COVID-19 pandemic. Options such as Free Zones provide great value for nearshoring opportunities to the United States, as well as access all markets across the Americas, in sectors ranging from light manufacturing to business process outsourcing.

By Michael P. Hirou, Chief USA Representative & Manager

If you are considering Latin American expansion whether in Colombia, Costa Rica, the Dominican Republic, El Salvador, or beyond Tractus can assist in achieving your objectives

For more information, please contact Andrew Clutz, Head of Economic Development andrew.clutz@tractus-asia.com