The Political and Economic Risks Facing Latin America in 2020

International businesses active in Latin America should be aware of the likely risks in the year ahead, writes Thomaz Favaro, Director, Control Risks São Paulo

International businesses active in Latin America should be aware of the likely risks in the year ahead, writes Thomaz Favaro, Director, Control Risks São Paulo

Over the coming year, businesses with operations in Latin America can expect to face a myriad of political, regulatory and security risks. We have identified three primary threats for investors in the region: protest movements, political instability and the perennial threats associated with the illegal drug trade and corruption. While these issues are not new for Latin America, businesses will need to be increasingly nimble as they navigate the evolving risk landscape.


Mexico is emerging from a disappointing first year of the administration of President Andrés Manuel López Obrador (AMLO). Despite Mexico’s economics strengths and its position as Latin America’s second-largest economy, businesses must be aware of heightened risks in the country in 2020 – including sluggish growth.

The economy barely missed recession during the first half of 2019, and growth prospects for 2020 remain at just 1%, after repeated forecast cuts. The disappointing results can be attributed in part to AMLO, following political decisions that sent negative signals for investors and a significant decrease in government spending on infrastructure and public services.

Under AMLO, the country saw its most violent year on record, with 2019 figures expected to see the murder rate exceed 25 per 100,000 inhabitants. Although AMLO inherited severe security issues, his government was unable to make a dent in organised crime. Still, Mexico remains competitive in key industries such as advanced manufacturing and automotive. It also benefits from one of the widest networks of free trade agreements in the hemisphere.


In Latin America’s third-largest economy, new president Alberto Fernández, is promising swift action to fight a recession that’s entering its second year. Given the structural nature of Argentina’s problems, a quick recovery seems unlikely. Four out of ten citizens are defined as poor, meaning they can’t afford a staple of basket goods. Inflation is above 50%, and its sovereign debt has risen to over $100 billion – including the $57 billion bailout package agreed by the IMF in 2018, the largest in its history.

As the left-leaning administration takes hold, businesses can expect significant shifts in economic policy.  Although the new president will likely adopt a pragmatic stance over most issues – including foreign relations and public security – his administration will also be marked by a series of heterodox, interventionist measures that are likely to undermine the local business environment. Fernández will maintain capital controls introduced by former president Mauricio Macri, including restrictions on access to hard currency and profit repatriation. This means that multinationals will continue to depend on permission from the Central Bank to obtain foreign currency and to make transfers abroad.


Brazil’s economy is likely to grow at more than 2% for the first time since 2013, generating new opportunities for investors. Yet President Jair Bolsonaro’s confrontational style could present challenges for business. Further deforestation in the Brazilian Amazon will keep the country’s controversial environmental policy at the global spotlight, attracting criticism from a myriad of trade partners – and could risk triggering harsh responses, including boycotts and sanctions. This in turn may damage Brazil’s interest as it looks to secure new trade agreements, specifically the EU-Mercosur deal.

"The Brazilian government’s pro-business stance is likely to bring some positive results domestically…"

The Bolsonaro administration will also focus on strengthening ties with a smaller set of allies, including U.S. President Donald Trump, shifting away from a policy of multilateralism. This could isolate a number of potential business partners for the private sector. In addition, the political differences between Bolsonaro and Fernández will likely erode diplomatic ties with Argentina, which will have unpredictable consequences for the sizeable flow of bilateral trade. The Brazilian government’s pro-business stance, however, is likely to bring some positive results domestically, including the privatisation of major infrastructure projects and trade liberalisation initiatives.

On the domestic political front, the government is likely to struggle with carrying out its conservative agenda as it faces significant opposition in Congress. Later in the year, Bolsonaro’s focus will shift to the creation of a new political party to compete in the October local elections.

Crime and political demonstrations should be on the radar of businesses operating in Brazil in 2020. Though crime rates are expected to remain on a downward trend, the widespread presence of organised criminal groups will continue to present security challenges for businesses. One of the main areas of risk is cargo theft.


Colombia will grapple with multiple challenges in 2020, including citizens losing trust in traditional institutions, a renewed risk of social unrest and violence from drug trafficking groups.

Left-wing politicians are gaining ground among a population that for decades has voted centre-right. Two left-wing politicians enduring a resurgence in their popularity are Sergio Fajardo, a mathematician that has served as mayor and governor, and Gustavo Petro, an ex-guerrilla and former mayor of Bogota. But it is not just traditional political parties that are being questioned: entire political institutions are being challenged - often in the streets. According to an August 2019 Gallup poll, 75% of Colombians think poorly of Congress, and 79% dislike political parties. Though the private sector has suffered a loss of popularity in the past decade, nearly half of Colombians view entrepreneurs favourably, and 58% think that the country should attract more foreign investment. This suggests that Colombia remains attached to its pro-business roots, but companies will need to do more to cement their trust. Firms that continue to enjoy the trust and business of Colombians will need to engage with their communities, demonstrate transparency, and care for the security and well-being of their employees and customers.

In conclusion, Mexico and Argentina have the most problematic economic outlooks among the region’s major economies, while security and political issues abound throughout Latin America. In 2020, businesses can expect to face challenges from unpredictable global leaders, security threats, and political tensions – and they will need to be increasingly proactive and nimble as they seek to mitigate their risk exposure.