Latin America is currently receiving unprecedented levels of interest from foreign investors. As a result of diminished opportunities and lower investment returns in the US and Europe, international businesses are looking to capitalise on the region’s expanding economies, growing middle class, economic and political stability and relative resilience to the financial crisis.

However, Latin America is a diverse region and some jurisdictions are considerably more appealing to international investors than others.

According to Fernando Alonso, who heads Hunton & Williams's Miami-based Latin America practice, "a few decades ago, large parts of Latin America were openly hostile to foreign investment. The opposite is now true; there is a virtual 'welcome mat' and people are sitting up and taking notice."

In addition, some of Latin America’s largest companies (known as multilatinas) are expanding both within the region and into Asia, Europe and the US.

Lawyers across Latin America agree that the region is attracting, and embracing, significant foreign investment. However, the economic and political environment in certain jurisdictions remains challenging. For instance:

Against this background, this article examines the investment environment across Latin America, according to some of the region's leading lawyers. In particular, the article considers recent developments in: Brazil; Mexico; Central America (particularly Costa Rica and Panama); Colombia, Peru and Uruguay (three countries with rising profiles); Venezuela; and Argentina.

Brazil is currently the top destination for businesses looking to launch or expand their Latin American portfolios.

According to Henrique Dias Carneiro, a partner at Dias Carneiro Advogados−associated with Uría Menéndez in São Paulo, "the unique situation in Brazil is not just the result of economic growth but also of careful economic planning. The global financial crisis was felt very differently throughout Latin America depending on the varying levels of external debt that each country held."

Dias Carneiro continues: "Against this background, Brazil has spent the past decade boosting its capacity to pay external debt, increasing exports and reducing its dependence on imported oil. These measures, aligned with severe regulation (which almost banned overseas investments by Brazilian financial institutions) considerably softened the impact of the global downturn on Brazil."

José Luis Freire, founding partner of Tozzini Freire, notes that, although Brazil's exports have declined in line with a global drop in demand, they only account for 15% of the country's GDP, so the decline had a limited impact on the economy. The decrease was also partly offset by growing internal consumption (boosted by tax incentives), longer credit terms and an increase in the income of skilled and unskilled workers. Freire also expects the recently-discovered, offshore pre-salt oil exploration areas to attract additional interest from overseas investors (for further background on oil and gas exploration in Brazil, see GC Agenda in this issue).

As Freire emphasises, "our economy is doing better not only in comparison to our immediate neighbours but also compared to other economies. Brazil's GDP growth during the first quarter of 2010 was the world's second highest after China's."

Brazil's substantial and sustained economic growth has fuelled the emergence of some of the region's foremost multilatinas. Indeed, partly as a result of the rise of these corporate juggernauts, Brazil's foreign investment flows are gradually becoming two-way, as highlighted by:

According to practitioners, the forthcoming presidential elections are only having a minor impact on market sentiment. The eight-year term of President Lula Da Silva has cemented the notion of centrist pro-market politics, which have helped consolidate Brazil’s position as Latin America’s economic powerhouse (Brazil: a country of continuing opportunities).

Practitioners are quick to point out that there is more to Latin America than Brazil. Mexico is second on many businesses’ regional target lists. However, according to local lawyers, due to the country’s high dependence on the economic health of the US, 2009 was not a particularly kind year. "When the US catches a cold, Mexico gets pneumonia," says Daniel del Rio, a partner with Basham Ringe & Correa in Mexico City. The combined effects of the financial crisis, economic downturn and an outbreak of swine flu resulted in a negative growth of 6.5% last year according to the Mexican Central Bank (Banco de México).

However, 2010 has been significantly better so far, and the Mexican Central Bank predicts that GDP growth will return to around 4.5% to 5% by the end of the year. As Del Rio points out, "2010 is a different story. With the relative rebound of the US economy, Mexico is experiencing growth once again following an increase in exports to the US, which represent around 80% of what Mexico sells abroad." Del Rio foresees the coming year offering more investment opportunities, which may see figures return to 2008 levels. However, he believes that the country still needs substantial reforms in areas such as tax, labour and the telecommunications and energy sectors to further boost investment activity.

Central America vicariously felt the effects of the economic downturn in the US, which caused the area's economy to contract by approximately 0.5% in 2009. According to Mauricio Salas, a partner with BLP Abogados, in Costa Rica the decline was primarily due to a fall in tourism, changing consumption patterns, and a decrease in both foreign direct investment (FDI) and remittances from the country's main economic partners, Spain and the US.

The implementation of the Dominican Republic-Central America Free Trade Area (DR-CAFTA) has helped open up the region’s economies, but it has also meant that economic contagion has spread more quickly.

Two economies of particular note in Central America are Costa Rica and Panama.

Some Latin American countries that have traditionally proved more challenging to international investors are now generating considerable interest, including Peru, Uruguay and especially Colombia.

As several lawyers emphasise, certain Latin American jurisdictions, such as Bolivia and Venezuela, still present challenges for international investors. Although investment opportunities exist in these jurisdictions, apparent political opposition to foreign private investment means that successful transactions require careful planning and an intricate understanding of prevailing economic and political drivers. Adding to uncertainty in Venezuela is the upcoming election in late 2010. While incumbent President Hugo Chavez’s leftist government may remain popular with many at home, this has been at the cost of increasing international commercial isolation (see box, Understanding the government: key to Venezuelan investment success).

According to some of Argentina's top lawyers, the country is also facing issues. The aftershocks of Argentina's sovereign debt default at the start of the millennium continue to be felt in the form of low international investor confidence and domestic consumer behaviour.

Recent protectionist government initiatives, such as the nationalisation of Aerolineas Argentinas (a subsidiary of Spain’s Marsans), have further deterred potential foreign investors. Telecom Argentina, a subsidiary of Telecom Italia, has also reportedly come within the sights of President Cristina Kirchner’s government, which has already set price caps on domestic fuel prices.

As Tomas Miguel Araya, a partner at M&M Bomchil in Buenos Aires explains, "unlike our neighbours, notably Chile, Peru and Brazil, Argentina has not received a strong influx of FDI over the past decade. Consequently, the country's economic growth has mainly been fuelled by rising internal consumption and expansionary fiscal policies, which have in turn caused an inflation problem."

Apart from some collateral effects on recent government bond swaps, the global financial crisis had a relatively modest direct impact on Argentina. The country’s peculiarities mean that there is little possibility of economic contagion from its neighbours.

"There remains a degree of caution towards utilising the domestic banking system and so, with minimal deposits there is minimal lending. Conversely, there is an emphasis on consumerism, which means that many local businesses are doing very well," says Alberto Lasheras-Shine, a partner at Estudio Beccar Varela in Buenos Aires.

The country’s economy may still be growing, but this growth is very much fuelled by government spending. Despite the importance of agricultural exports for the Argentine economy, the country's ability to capitalise on the past decade’s commodities price boom has been marred by various problems, including the recent crisis caused by the imposition of tax increases on major agricultural exports such as soy. The recent tax increases were implemented partially to combat inflation, which is officially stated to be 15%, although several private economists, including the Foundation for Latin American Economic Investigations (FIEL) maintais that the real figure is actually close to 25%.

"Investors need economic, political and legal certainty and, for too long, we have had varying degrees of these. We have, however, recently seen positive developments at the Supreme Court, which have noticeably reduced the impact of some of the government’s more puzzling policies," says Lasheras-Shine. As a result, he says, "many of us are now more optimistic and are beginning to see light at the end of the tunnel, although always thinking that there might be yet another train coming towards us."

While the Latin American region may be performing better than others around the world, strong differences remain in economic performance and investor appetite among individual countries. However, it is undeniable that the basic attractions of the region continue to exist. The main challenge for international investors is to adapt their expectations and operational methods to local realities.