NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, May 13, 2015

For many, Latin America is associated with a laundry list of negatives: drugs, corruption, gang violence and transnational crime. However, our new reportHarnessing Social Impact Investing in Latin America, helps to dispel some of these myths. In fact, in the realm of social impact investing, it is on the forefront of rapidly-changing global trends.

The report, published by the Atlantic Council, demonstrates that impact investing — using investment funds and vehicles for programs and entrepreneurs that both make money and provide critical public services — is reaching a crucial watershed in the region. Subtitled “Private Capital for the Public Good,” we look at how business leaders are at the forefront of making financially sound investments that help make social progress in the realms of education, health care, and inequality.

By 2013 some 19 percent of impact investments globally were directed toward firms and organizations in Latin America. That is despite the fact that only four percent of impact investors globally are physically based in the region. A major reason for the popularity of Latin America among such investors is demographics. The region’s middle class has expanded dramatically over the past decade, as sustained growth and targeted government programs have lifted millions out of poverty. A growing middle class puts new pressures on governments to deliver better social services, from education to housing to healthcare. Policymakers have struggled to meet these demands.

The spike in Latin America’s youth population makes the problem even more pressing. Currently, 20 percent of the population is between 15 and 24 years old, and a growing number of them — known as “NiNis” (neither employed nor in school) — have few opportunities in the labor market. Here, impact investing can provide new avenues for technical education and job training.

Technology is also primary driver. Today’s youth grew up as “digital natives” in a region where Internet penetration rates are growing fast and are expected to surpass 54 percent by 2015. Latin America’s Millennials exhibit a strong entrepreneurial spirit and a deep concern for social justice, two ingredients for successful impact investing.

Still, the region remains the world’s most unequal, and commodity-based growth limits its upside potential. Reaching the next level of development will mean greater competitiveness and increased productivity. This in turn will require improving human capital.