#What the Latin America Supply Chain Shift Means for Investors
Global manufacturers are rethinking their supply chains. As firms move away from overdependence on Asia, Latin American countries are starting to attract new investment in logistics, manufacturing, and infrastructure.
This shift, often called “nearshoring”, is drawing capital into countries like Mexico, Brazil, and Costa Rica. While it’s early, the trend is opening new possibilities for select industries and companies with exposure to the region.
Latin America, with its competitive labor costs, proximity to the US, and cultural alignment with North American markets, offers a promising environment for companies looking to relocate production. The Inter-American Development Bank projects that nearshoring could increase annual exports of goods and services in Latin America and the Caribbean by approximately $78 billion over the medium term1.
Why It’s Gaining Momentum
Trade tensions and rising costs are leading companies to diversify production.
Mexico offers geographic advantages and access to U.S. trade agreements.
Global firms like GM and Flex are expanding Latin American operations.
Governments are rolling out incentives to attract foreign investment.
#Latin America Nearshoring Investment Grows
Latin America’s appeal for nearshoring is evident in the growing foreign direct investment (FDI) in countries such as Mexico, Brazil, Costa Rica, and Colombia.
US-based companies are leading the way, with investments in sectors like automotive, oil and gas, and technology infrastructure. For instance, Tesla’s plans for a gigafactory in Mexico deferred to 2026+, and Exxon Mobil’s $12.7 billion oil project off the coast of Guyana signal a strong commitment to leveraging the region’s resources and geographical advantages.
Despite challenges like electricity shortages in Mexico, inflation in Argentina or political instability in Venezuela, Latin America’s potential for growth remains robust, especially as companies look to shorten supply chains and reduce exposure to global trade conflicts.
For investors, these regions present an opportunity to benefit from the nearshoring trend, as companies increasingly prioritize shorter, more resilient supply chains.
#Top Latin American Countries for Nearshoring
Latin America has emerged as a prime destination for nearshoring, with several countries attracting significant investment across various sectors:
Mexico: Proximity to the U.S. and the USMCA trade deal are accelerating factory growth.
Brazil: Local energy capacity and consumer demand are supporting long-term projects.
Costa Rica: Steady inflows in high-tech manufacturing and biotech
Mexico
Mexico stands at the forefront of nearshoring due to its proximity to the United States, established manufacturing infrastructure, and participation in the United States-Mexico-Canada Agreement (USMCA). The automotive industry, in particular, has seen substantial growth, with companies like Tesla planning to establish a gigafactory in the country. Additionally, the electronics and aerospace sectors are expanding, supported by a skilled labor force and competitive production costs.
Brazil
Brazil's large domestic market and membership in Mercosur make it an attractive nearshoring destination. The automotive sector benefits from these advantages, with automakers seeking proximity to North American markets. Brazil's leadership in biofuels and expanding renewable energy sectors further align with global shifts toward greener technologies, enhancing its position as a major energy exporter.
Costa Rica
Costa Rica has transformed into a hub for industries such as semiconductor manufacturing, biotechnology, and fintech. The country's political stability, regular democratic elections, and strategic initiatives to become a leader in semiconductor production, supported by U.S. partnerships and educational collaborations, have attracted significant investment.
#Impact of Trade Policies, Tax Benefits and Incentives
Mexico’s USMCA ties and Costa Rica’s CAFTA-DR agreement cut tariffs, making both countries appealing for nearshoring. They also offer tax breaks to attract foreign investors and lower costs. Mexico recently added new incentives like faster depreciation on new assets to support this trend2.
#Public Companies Tied to the Nearshoring Trend?
Sectors such as manufacturing, logistics, and technology infrastructure in Latin America are projected to grow due to nearshoring, creating opportunities for publicly listed companies across various sectors. Here are some notable examples:
Manufacturing and Industrial Companies
Tesla Inc (NASDAQ:TSLA) is leveraging Mexico’s proximity to the U.S. with plans for a future gigafactory, while Bombardier Inc. (TSX: BBD.B) is expanding aerospace operations, capitalizing on the skilled workforce and strategic location.
Logistics and Transportation Companies
Canadian Pacific Kansas City Ltd (TSX: CP) and Grupo Aeroportuario del Pacífico (OTC: GPAEF) provide critical infrastructure for nearshoring, connecting North American supply chains through efficient rail and air networks in Mexico.
Real Estate and Infrastructure Companies
Prologis Inc (NYSE:PLD) supports nearshoring with warehousing and distribution facilities in Mexico, enhancing supply chain resilience for companies relocating production closer to North America.
As one of the world’s largest building materials companies, Cemex SAB de CV ADR (NYSE:CX) provides essential materials for infrastructure projects across Latin America, supporting the construction of facilities critical for nearshoring operations.
Technology and Electronics Companies
Flex Ltd (NASDAQ:FLEX) and Jabil Inc (NYSE:JBL) have expanded their Latin American operations, serving companies shifting production to the region to reduce supply chain risks.
Automotive Companies
General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) have substantial manufacturing footprints in Mexico, aligning with nearshoring strategies to meet U.S. market demand efficiently.
Latin America-Focused ETFs
Investors interested in capitalizing on nearshoring trends in Latin America may want to explore ETFs that provide broad exposure to this region.
iShares Latin America 40 ETF (ILF)
This ETF offers exposure to the 40 largest Latin American companies, focusing on Brazil, Mexico, and other key markets. It includes industries such as financials, materials, and energy, which could benefit from increased foreign direct investment (FDI).Global X MSCI SuperDividend EAFE ETF (EFAS)
While this ETF focuses on global high-dividend-paying stocks, it includes exposure to several emerging Latin American countries. Its diversification may appeal to investors looking for stable dividend returns while benefiting from nearshoring trends.Franklin FTSE Latin America ETF (FLLA)
This ETF tracks large and mid-cap companies from Latin American countries, including Brazil, Chile, Mexico, and Peru. It’s a good choice for investors looking for a broad representation of the region's equity markets.VanEck Brazil Small-Cap ETF (BRF)
For those seeking to focus on Brazil, which is a major player in Latin American FDI, this ETF provides exposure to smaller, growth-oriented companies. These firms could benefit from reshoring efforts by multinational corporations (MNCs).
Each ETF offers unique sector exposure, allowing North American investors to tap into the growth potential of reshoring and nearshoring while providing diversification across multiple industries and countries.
#Challenges and Risks of Nearshoring in Latin America
While nearshoring presents numerous opportunities, companies must navigate several challenges:
Infrastructure Limitations
In Mexico, electricity shortages have posed challenges for manufacturing operations, potentially disrupting production schedules and increasing operational costs.
Economic Stability and Political Risk
Currency volatility and political instability vary widely across Latin America, impacting investment conditions3.
Argentina struggles with big currency swings and high inflation, making it hard for businesses to plan and stay profitable. Mexico is more stable but still sees currency dips, especially during major political events. After the 2024 U.S. election, the peso hit a two-year low4. Venezuela remains highly unstable, with ongoing political and economic chaos deterring investors despite the region’s considerable potential.
Security Concerns
Rising crime rates and security issues across parts of Latin America, particularly in regions of Mexico, have posed challenges to economic growth and foreign investment despite competitive manufacturing costs and free-trade benefits. Factors like electricity shortages, political instability, and judicial reforms in some areas add further complexity to nearshoring initiatives.
Regulatory and Legal Challenges
Complex regulatory environments and bureaucratic hurdles in some Latin American countries can delay project timelines and increase compliance costs. Companies must navigate varying legal frameworks, which can affect operations and profitability.
Addressing these challenges requires strategic planning, thorough risk assessment, and engagement with local stakeholders to ensure successful nearshoring initiatives in Latin America.
#Investment Time Horizon and Exit Strategies
Most nearshoring-related investments will play out over several years. Investors should assess their time horizon, liquidity needs, and diversification strategy when considering opportunities in Latin America.