The world’s largest economies are rethinking how they manage macro-level disruption to supply chains. Nearshoring and foreign direct investment are strengthening the connection between Asia Pacific and Latin America, which will impact trade flows for years to come. As companies seek to shore up these value chains, finding an on-the-ground banking partner with expertise in Latin America will be critical.
Throughout Asia Pacific, value chains are recalibrating to strengthen global supply networks. Latin America has emerged as a key beneficiary, allowing businesses to establish production closer to their final markets and embrace emerging supply networks. This new landscape presents exciting opportunities for businesses to grow in primary markets and enhance relationships with customers.
Why Latin America holds the key to global trade
Trade flows between Asia Pacific and Latin America have been bolstered by nearshoring, shifts in global consumer power, and public investments in strategic industries pivotal to energy transition and tech innovations. Notable factors driving this growth over the past two decades are Free Trade Agreements (FTA), Foreign Direct Investment (FDI), and strategic partnerships:
- 2003 – Only one FTA existed between the two regions (Chile-South Korea) 1
- 2013 – Mexico’s highest recorded FDI, according to the Economy Ministry 2
- 2020 – United States-Mexico-Canada Agreement (USMCA) established 3
- 2023 – Second highest FDI in Mexico of $36.06 billion, 2.2% higher than in 2022 2
- 2024 – The number of signed FTAs reached 26 1
- 2026 – The USMCA will be reviewed, which may be an opportunity for businesses to reassess regional capabilities 3
Chile, in particular, has been at the forefront of strengthening ties between the two regions, as evidenced by its early FTA with South Korea. Diego Masola, Scotiabank’s EVP and Country Head, Scotiabank Chile, notes the importance of this corridor, stating “As we navigate a rapidly changing global economy, the partnership between Chile and Asia Pacific will be instrumental in fostering sustainable growth and innovation.”
Factors to consider when operating in Latin America
Companies looking to build their presence in this region must consider several critical factors:
- Regulations and practices – Local knowledge is essential to evaluate regional situations and avoid reactive decisions.
- Geopolitical factors – The 2024 election super-cycle has heightened unpredictability, emphasising the need for analysts attuned to real-time developments.
- Scalable solutions – Third-party systems should be agile enough to extend regional coverage to meet client expectations, especially when consumer markets are in flux.
- A finger on the pulse of markets – Central banks in Latin America raised and lowered interest rates much quicker than peers such as the U.S. Federal Reserve Board. Appreciating the nuances of regional volatility is an important differentiator.
- Navigating payment systems – Look for payment platforms that speak the same language and reduce friction that can lead to slower remittances. Prioritizing interoperability and ease of use for businesses is a must.
- Infrastructure gaps – Attention to both physical and digital infrastructure is crucial. For example, Mexico’s Central Bank estimates that nearshoring benefits won’t fully materialize until 2026, when critical infrastructure upgrades are complete.
The importance of an experienced banking partner
Finding a banking partner that understands the nuances of local markets is essential to leverage cyclical opportunities and mitigate risk. Scotiabank’s full-scale banking presence in Latin America allows it to deliver scalable solutions, all in accordance with local regulations, to businesses at various stages of their journey:
1. Import-export support – Businesses requiring basic services, such as opening accounts, foreign exchange, wire payments and trade finance tools.
2. Establishing a regional presence – Businesses looking to expand will need comprehensive banking functions, including working capital, payroll, payment services, and treasury solutions.
Finally, as digital transformation reshapes payment systems, businesses must adapt to new technologies that facilitate seamless, data-rich transactions and enhance regional connectivity. As the landscape of global trade evolves, businesses must reassess their strategies and partnerships to respond to these insights. The trade relationships between Asia Pacific and Latin America present unique opportunities for growth and innovation.
Learn more about how Scotiabank is providing Trade Finance solutions for businesses.
1 Latin America’s Pivot to Asia? Geopolitica.info, February 16, 2024.
2 Foreign direct investment in Mexico totaled over US$36B in 2023, Mexico News Daily, February 15, 2024.
3 USMCA Timeline, GHY International.
