In 2011, the software, IT and communications sector received the largest share of inward FDI capital in Latin America, with figures from greenfield investment monitor fDi Markets valuing projects in the sector at $36bn, ahead of metals and minerals ($32bn), transport equipment ($14bn) and renewable energy ($13bn).
The software, IT and communications sector retained the number one spot in Latin America for the first half of 2012, though a decline in FDI inflows into the region during this time was reflected by a fall in project numbers in the sector. The biggest fall was recorded in Mexico, where the number of projects declined by 66% to just four new greenfield ventures. The number of new projects in Colombia declined from nine to seven, in Argentina also from nine to seven and in Costa Rica and Panama from three to only one new project.
The slight fall of new inward software and IT foreign enterprises in Latin America can be attributed to the prolonged economic problems of developed countries, which constitute the majority of investors in the sector in Latin America. However, the long-term outlook for investments in software, IT and communications remains positive. “Software and IT services are still underdeveloped in the region and their growth potential is much larger, especially due to the rising middle class, combined with increasing computer and internet availability and diminishing software piracy,” says Carolina Dams, partner at investments consultancy A2C Advisors.
Brazil is the one country that bucked the general slowing trend, and recorded a significant uptick in new ventures. In the first half of 2012, the country received 38 new projects, which is up 31% compared with the same period of 2011. “Brazil is a very attractive market that will continue to expand thanks to coherent government policies and future attractive events, such as the World Cup in 2014 and the Olympics in 2016. This will generate great opportunities across all sectors, including IT,” says Ms Dams.
Claudia Fan Munce, a member of the board of directors of the National Venture Capital Association, is also enthusiastic about Brazil's prospects. She says: “I am based in Silicon Valley, and I know what is being discussed by venture capitalists there. It used to be investing in India and China; now their attention has shifted into Brazil.”
According to Ms Fan Munce, investors are especially interested in launching new projects in Rio de Janeiro, thanks to its network of technical universities, business incubators and its existing high-tech cluster. Nevertheless, the city still falls short when compared with its biggest competitor – São Paolo.
Two new projects in software and IT received by São Paolo, which has 85% more greenfield ventures than Rio de Janeiro, makes it the top destination in Latin America. Among the recent investors to São Paolo were companies such as the US conglomerate Honeywell, Spanish provider of software for the hospitality industry Idiso, and Chinese search engine platform Baidu.