Skip to main content

Three trends to impact business in 2017

The year 2016 marked a time of new beginnings, rapid changes and uncertainty. This is especially true in Latin America and the Caribbean’s private sector. Looking back, we see three trends that impacted the year and will define what is to come.

Three trends to impact business in 2017

1. Crowding-in is on the rise, especially in renewable energy, ports, and roads

An economic principle to describe increased private investment alongside government debt-spending, crowding-in typically happens with slow growth. With the economy expected to expand 1.6 percent in 2017 after a contractionary year, crowding-in will likely continue.

In the case of infrastructure, crowding-in takes time. To address low investor confidence and high uncertainty, multilateral development banks (MDBs) support governments to bridge the financing gap. With capital, technical consultations and concessionary resources, MDBs tested risks and financial viability, thus paving the way for the private sector.

Latin America and the Caribbean now leads in private infrastructure finance. Recent IDB research highlights that the region’s private sector has invested 30 percent more in infrastructure than high-growth Asian economies and five times more than Sub-Saharan Africa. More local and international commercial banks are now participating in deals like container terminals, wind farms and highways – projects accustomed to multilateral financing and government subsidies.

Recently, an energy developer told The Economist, “Alternative energy is no longer alternative. It’s now commercial.” Consequently, crowding-in has led to a rapid decline in renewable energy prices. In Chile, this has lowered the cost of the solar energy price awarded by a third since 2008.

Public-private partnerships (PPPs) are also motivating the private sector. The region invests in the largest share of PPPs, in which 46 percent of financing comes from private financiers. PPPs strengthen local regulatory frameworks, incentivize timely construction and maintenance and can deepen capital markets. Bankable PPPs go beyond core infrastructure with success in education, health and logistics. The more private sector finance the region can crowd in, the more gaps close and competition and economic growth increase.

2. Market modernization pushes new frontiers in the region

The digital revolution is here, and there is no turning back. In 1980, 1 gigabyte of storage cost upwards of $200,000. Now it is free. The pace of change is exponential. Investing in telecommunications and digitization will level the playing field and foster business in the region.

Modernizing existing 3G/4G mobile broadband technologies is one way. It can improve data coverage, speed and storage, and revolutionize user experiences. Further lowering the costs of storing and transmitting information can make it easier and cheaper for businesses to codify and organize internal knowledge. Investing in telecommunications companies to expand and boost coverage and speed is a trend gaining momentum.

Online platforms for trade and supply-chain finance take advantage of this connectivity. They can provide efficient and scalable means to finance small and medium enterprises that traditionally could not access the formal sector or, if so, paid high interest rates.

Technology companies enable big anchor companies to support their suppliers by allowing them to obtain affordable credit through reverse factoring. Such platforms, like e Factor Diez S.A., have successfully launched in Mexico and may soon expand to neighboring countries.

The most dynamic companies in the 21st century economy are knowledge-intensive and modernized. High-performing systems to meet their evolving needs can have positive spillover effects throughout the economy.

3. Sustainability, driven by pushes for climate change mitigation and gender equality, is advancing private-sector development

The end of 2015 saw the adoption of the Paris Agreement and the UN Sustainable Development Goals, and 2016 started with an enthusiastic push for their implementation.

In Latin America and the Caribbean, urbanization continued, temperatures rose and middle-class growth slowed while women became increasingly powerful economic actors. To adapt, businesses invested in social inclusion, vulnerability reduction and climate resilience. According to a recent HSBC survey, three-quarters of the region’s investors plan to increase their climate-related or low-carbon exposure.

We will see more businesses focus on increasing women’s access to credit, educating women in sciences, math, technology and engineering; preserving biodiversity, and insuring farmers in times of extended droughts and rain. Sustainability impacts all sectors and proves more profitable.

As we look to 2017, we at the Inter-American Investment Corporation see ourselves as solution-providers. Long tenors, local currency and increasing use of equity coupled with advisory on sustainable business performance are a few of the tools we have to unstick the economy and catalyze counter-cyclical growth. We see growth potential in telecommunications, SME finance, agribusiness and sustainable tourism. We will continue pursuing ambitious projects in infrastructure, including in the health and education sectors.

By partnering with companies that create jobs, invest in human capital and innovate, we will accelerate development through the private sector. Working hand in hand with the public sector, we are more prepared than ever to adapt to uncertainty, provide solutions to our business partners and achieve lasting prosperity in our region.

Authors

James P. Scriven

James P. Scriven is the CEO of IDB Invest, the private sector institution of the Inter-American Development Bank (IDB) Group. IDB Invest is a

Transport

Related Posts

  • Electric bus in Bogota
    Next Stop for Electric Buses: What Do We Do with the Batteries?

    This type of vehicle is becoming a key option compared to diesel to reduce emissions in public transport. The challenge, however, is to find effective ways to extend the life of the batteries and recycle their components.

  • Bicicletas en una estación de anclaje.
    Is Bikesharing The Future of Latin America’s Cities?

    Micromobility solutions, such as shared bikes and scooters, have gained significant traction in cities worldwide, with Latin America witnessing a surge in their adoption. These alternatives to car usage promise reduced emissions, reduced congestion, and decreased parking space demands in urban centers.

  • Image
    Electric Buses Roll Out Challenges and Opportunities for Latin America and the Caribbean

    Policy makers are aware of the importance of cutting down on CO2, manufacturers are rolling over new electric buses and private sector investors have appetite to invest in this sector, as demonstrated by recent tenders in Bogotá and Santiago. But there are still road-blocks ahead of a massive roll-out of electric buses.