Unlocking Potential: Why Latin America is Primed for a Deep Tech Boom
Why is Latin America poised to become a global Deep Tech powerhouse? In this post, we discuss Latin America’s unique labour market, an abundance of natural resources, mobile penetration, geopolitical relevance, and interest from venture investors, and conclude with some challenges to overcome to drive more investment into the deep tech sector across the region.
A Robust and Growing Technical Talent Pool
The foundation of any tech ecosystem is talent, and Latin America boasts a wealth of it. Latin American governments have been investing in STEM-centered educational programs across the region, which has resulted in higher education that is fostering more entrepreneurship regionally.
Educational Attainment:
Brazil produces approximately 100,000 engineering graduates annually, ranking among the top countries globally for engineering education.1
Mexico graduates over 110,000 engineers and technicians each year, accounting for 20% of its annual graduates.2
Argentina, with its strong emphasis on education, contributes significantly to the region's talent pool. Universities like the University of Buenos Aires are recognized globally for educating leading technical professionals.
Government Initiatives:
Brazil's Science Without Borders program provided scholarships to over 100,000 students in STEM fields to study abroad, enhancing the skill sets brought back to the country.3
Mexico's PROSOFT initiative offers financial incentives to companies investing in IT development, fostering domestic talent.4
Brazil hosts over 12,000 tech startups, making it the largest startup ecosystem in Latin America.5
Mexico City is home to a growing number of tech parks and incubators, such as Startup Mexico, which supports numerous startups annually.
Buenos Aires has been recognized as one of the top startup ecosystems globally, and within Latin America.6
This surge in technical talent is fueling domestic innovation and attracting global tech companies to establish research and development centers in the region.
Leveraging Rich Natural Resources for Technological Advancements
Latin America's abundant natural resources are a cornerstone for deep tech innovation, particularly in clean technology. Whether it be lithium reserves that provide the cornerstone for energy storage that deep tech heavily relies on, through immense biodiversity, the region’s resources provide it with the opportunity to foster a greener deep tech ecosystem.
Lithium Reserves:
The "Lithium Triangle" (Argentina, Bolivia, Chile) contains an estimated 58% of the world's lithium resources.7
Renewable Energy Potential:
Biodiversity for Biotechnology:
The Amazon rainforest, spanning several Latin American countries, is a hotspot for biodiversity, offering vast potential for biotechnological research in pharmaceuticals and sustainable agriculture.
These resources are attracting significant foreign investment and driving innovation in energy storage solutions, electric vehicles, and sustainable technologies.
Digital Transformation and High Connectivity Rates
The rapid digital adoption in Latin America is a catalyst for technological innovation, as most people throughout the region are accustomed to using and adopting technology-first services.
Internet and Mobile Penetration:
Fintech Revolution:
EdTech Expansion:
The EdTech market in Latin America is projected to reach $3 billion by 2023, growing at a CAGR of 15%.16
Platforms like Platzi and Descomplica are revolutionizing online education, reaching millions of students across the region.
E-commerce Growth:
This digital landscape provides an ideal environment for developing and scaling AI-driven applications, fintech solutions, and other tech innovations.
Geopolitical Advantages and Nearshoring Opportunities
Latin America's strategic location and evolving trade relationships present significant advantages. In particular, with Trump’s recent victory, the expectation is the United States will continue to nearshore its production, which would ultimately benefit Latin America. Overall, we may also see some deregulation across the tech sector that would foster more investment across the Americas.
Proximity to Major Markets:
The region's geographical closeness to North America reduces logistical complexities and costs for companies.
Similar time zones facilitate real-time communication and collaboration with U.S. and Canadian companies.
Trade Agreements:
USMCA has enhanced intellectual property protections and digital trade provisions, benefiting tech companies (Office of the United States Trade Representative).
The Pacific Alliance (Chile, Colombia, Mexico, Peru) promotes economic integration, aiming to eliminate a substantial amount of tariffs among member countries.19
Nearshoring Trends:
Companies are shifting supply chains to Latin America to mitigate risks exposed by the COVID-19 pandemic and geopolitical tensions elsewhere.
Mexico has seen a surge in manufacturing investments, with foreign direct investment (FDI) in the sector reaching $12 billion in 2021.20
Government Support:
These factors make Latin America an increasingly attractive destination for companies looking to expand or relocate their operations.
Surge in Venture Capital Investment and Thriving Startup Ecosystems
Latin America has been one of the fastest-growing regions with regards to incoming venture investment. Investment trends underscore the region's growing prominence in the tech world, particularly coming off the back of successful exits coming from the region.
Record-Breaking Venture Capital:
Notable Investments:
Rappi, a Colombian delivery app, raised $1 billion in a funding round led by SoftBank.
Creditas, a Brazilian fintech company, secured $260 million in Series F funding, reaching a valuation of $4.8 billion.
Local Venture Firms:
Government Programs:
Startup Chile has supported over 2,000 startups, generating over $1.4 billion in economic activity.
Brazil's InovAtiva Brasil offers acceleration programs to over 400 startups annually, providing mentorship and investor connections.
These investments and programs are creating vibrant ecosystems that nurture innovation and entrepreneurship.
Addressing Challenges: Paving the Way Forward
While the potential is immense, Latin America faces challenges that need to be addressed to unlock its full capabilities. We discuss some of these challenges, and dive into some practical examples where these challenges have posed as serious roadblocks to the innovation ecosystem in the region.
Political Instability:
Changes in government and policy shifts can create uncertainty. For example, regulatory changes in Mexico's energy sector have raised concerns among investors.26
Corruption and Governance:
Transparency International's Corruption Perceptions Index ranks several Latin American countries below the global average.27
Initiatives like Brazil's Operation Car Wash have shown commitment to combating corruption.28
Infrastructure Gaps:
The World Economic Forum notes that Latin America needs to invest 5% of its GDP annually in infrastructure to meet its needs, but current investment is around 2.8%.29
Market Fragmentation:
Diverse regulations and standards across countries can hinder regional expansion for businesses.
Opportunities to Overcome Challenges:
Regulatory Reforms:
Countries are implementing policies to improve the business environment. For instance, Peru's digital government initiatives aim to streamline administrative processes. Other countries including Costa Rica are adopting Estonia’s e-governance X-Road platform.30
Public-Private Partnerships (PPPs):
PPPs are being leveraged to improve infrastructure and services. Colombia has over $25 billion in PPP projects.31
Regional Integration Efforts:
Organizations like the Inter-American Development Bank (IDB) support projects that enhance regional connectivity and standardization.
By proactively addressing these challenges, Latin America can create a more conducive environment for innovation and investment.
The Road Ahead: Latin America's Role in Global Innovation
Latin America's trajectory suggests a growing influence on the global stage, we have already seen governments across the region turn heavily towards relying on deep tech as a key economic and social driver of success throughout the region.
AI and Machine Learning:
Biotechnology and Healthcare:
Sustainable Development:
Our next post will highlight some of the leading deep tech companies emerging from Latin America, diving into case studies throughout the region to unpack what verticals they are tackling and what generalizable lessons can be gleaned for other builders across the region.
Embracing the Opportunity with the Latin American Dynamism Project
Latin America's ascent in the deep tech sector is not just a regional development but a global opportunity. Investors, innovators, and policymakers can participate in this exciting journey by:
Investing in high-growth potential markets with significant returns.
Collaborating on research and development initiatives.
Supporting sustainable and ethical technological advancements.
The Latin American Dynamism Project (LADP) offers comprehensive insights into this vibrant landscape. By engaging with LADP, you can access:
In-depth research reports.
Networking opportunities with key industry players.
Updates on policy changes and market trends.
Join us in shaping the future of global innovation. Visit LADP's website to learn more and become part of Latin America's deep tech revolution. We also invite you to take our survey to contribute to our research.