We have witnessed significant challenges and transformation in Latin America in the past year. Businesses across the region have grappled with political tensions, macroeconomic uncertainty, high interest rates and shifting regulatory landscapes—as well as the boom in AI.
The elections in Latin America in 2024 are now behind us, though, as expected, the results have led to as many questions about the future as they have to answers. We are particularly focused on Venezuela and are hopeful that the democratic aspirations of the people of Venezuela will be respected. The US presidential election has also now concluded, and its outcome could have significant consequences for many jurisdictions.
In this year's edition of Latin America Focus, we will explore some of these complex dynamics and consider how companies can adapt to changes and capitalize on trends to forge a path through this ever-changing environment.
We begin with a look at our extensive pro bono efforts in the region, which focus on promoting justice, equality and the rule of law. From upholding the fundamental human rights of children with incarcerated mothers to advocating for the rights of asylum seekers, our projects underscore the importance of legal awareness and access to justice. In 2023 alone, we logged more than 1,900 pro bono hours in Latin America, reflecting our dedication to making a meaningful impact.
As artificial intelligence continues to accelerate globally, Latin America is no exception. Our second piece examines how the region is navigating the balance between fostering innovation and implementing AI regulations to mitigate risk. Brazil, Mexico, Chile and Argentina are each exploring regulatory frameworks—with varying amounts of progress—aligned with their policy priorities. These efforts are crucial, as AI is projected to contribute significantly to the region's GDP, driving economic and social development.
Next, we provide an overview of investment and disputes trends. Foreign investment remains a critical driver of growth in Latin America, though political volatility often leads to investor-state disputes, particularly when investment-hostile policies replace more favorable ones. However, the region continues to attract robust investment in sectors such as mining, renewable energy and data centers. Navigating these complexities requires a well-integrated investment protection strategy to safeguard interests and foster long-term growth.
We then turn to the pressing issue of water security, with many regions facing scarcity and aging infrastructure. Brazil and Chile are leading the way in unlocking private investment to tackle these challenges through public-private partnerships (PPPs). These initiatives are essential to improving access to clean water and sanitation, which remain critical for sustainable development and public health. We are optimistic that meaningful reforms in other countries, including Mexico, will help PPPs or other structures gain similar traction there to ensure long-term water security.
Lastly, we consider the booming data center industry in Latin America, whose rapid growth brings challenges, particularly in securing necessary resources like power and water. Countries such as Mexico, Chile and Brazil are at the forefront here, addressing these issues through innovative financing and strategic planning. The expansion of data centers not only supports the digital economy but also presents significant investment opportunities in the region.
We look forward to discussing these and other issues with you.
Lending a local hand: White & Case pro bono in Latin America
Under pressure: Latin American water sector turns to private investment
With strained water resources and infrastructure across the region under increased pressure, Brazil and Chile lead the way in unlocking private investment in the water sector
The World Bank has reported that Latin America holds nearly a third of the world's water resources and is the world's largest hydropower producer. With these credentials, one could easily overlook the challenges the region's water sector faces.
166 million people in Latin America lack access to a safe water supply, and 150 million live in water-scarce areas
Water security and scarcity
Also, according to the World Bank, 166 million people lacked access to safely managed water supply services in Latin America in 2017, and 150 million people lived in extremely water-scarce areas in 2019. Water scarcity is further exacerbated by climate variability and extreme weather events, the discharge of untreated effluents into water resources, and decreasing water storage capacity from natural resources. Economic development in Latin America has also historically relied on two water-intensive industries: agriculture and mining.
Unsustainable systems, aging infrastructure and non-revenue water
Many small state-run water utilities struggle to fully recover their operating costs from tariff revenue. High levels of water losses from inadequate operations further increase the cost of treating and delivering water. With financially unsustainable operations, deferred maintenance occurs, and capital investments are a challenge. Additionally, research from 2023 forecasts public budgets for infrastructure development over the next 12 months will remain the same or decrease.
A 2012 OECD study found that in all Latin American countries, there is significant decentralization of water functions. Services are delivered by local governments and resource management is performed by higher-tier governments, which results in uncoordinated water policies, regulatory uncertainty, reduced accountability and funding gaps.
But the cost of not investing in water is too high to ignore. In Colombia, for example, the World Bank estimates water scarcity reduces the country's GDP by 1.6 percent to 2.3 percent due to the decline in agricultural crop yields, employment contraction and reduction in production, among other factors.
To achieve the 2030 UN Sustainability Development Goals despite these challenges, a concerted effort from governments and the private sector will be needed to change how water is regulated, sourced and consumed. In this spirit of partnership, countries are increasingly turning to public-private partnerships, or PPPs, to bolster investment in water infrastructure. More than 40 water and sanitation projects were underway in July 2023, covering wastewater treatment plants, desalination facilities, dams and irrigation systems, and representing US$9.2 billion of committed investments.
In Brazil, the federal government reports that in 2022 approximately 32 million people lacked access to treated water and 89 million to basic sewage collection. In 2020, Brazil enacted a new legal framework mandating that, by 2033, 99 percent of the population must have access to drinking water and 92 percent to sanitation. The Brazilian Association of Water and Sewage Services Concessionaires estimates that this requires a US$168.7 billion investment that is expected to result in a US$264.4 billion increase in Brazil's GDP by 2033.
The new legal framework opened the water market for PPPs, with the number of municipalities served by private concessionaires quadrupling between 2019 and 2023. In Rio de Janeiro—the posterchild of the benefits of private investment in water infrastructure—the concessionaire's investments are expected to universalize water and sanitation services in 12 years, while CEDAE, the prior, state-owned operator, was projected to need 140.
But faster investment is needed everywhere, as at the current rate, some studies suggest Brazil's universalization goals would only be met in 2070.
In 2023, Brazil established the Sustainable Regional Infrastructure Development Fund to finance the structuring costs of PPPs in various sectors, including water and sanitation, which small municipalities often cannot afford. There are plans to expand the fund's mandate so it can act as guarantor in availability payment-based PPPs where state or local credit is a concern.
Further, recent procurement processes have focused on the underdeveloped north and northeast regions, and on ensuring asset monetization proceeds are recycled into additional water and sanitation investments. In the state of Amapá, for example, the concessionaire must apply a portion of the concession fee toward investments in sewage and water supply outside of the concession area, and hand over operation of these assets to municipalities.
This new direction is expected to accelerate the pace toward service universalization. Brazil currently has 48 water and sewage projects in the structuring phase, with combined investments of at least R$64.7 billion.
Chile: Water scarcity drives desalination and reuse
Unlike Brazil, Chile's water sector is privatized, which has helped the country achieve 95 percent of population coverage in both drinking water and sanitation, and rank among the top 20 water sectors in the world. The main stress factor here is water scarcity.
Chile has faced drought conditions for the past 15 years. Northern Chile suffers from severe water scarcity, further exacerbated by intensive mining and continuous population growth, with demand in some regions exceeding supply by more than 20 cubic meters per second. This issue will only grow as demand for copper—one of Chile's most important exports—is predicted to double in the next ten years.
Chile's mining and agricultural industries generate significant economic and social friction as a result of competition for an increasingly limited resource. Agriculture accounts for 88 percent of water usage, while in the northern region of Antofagasta, mining accounts for 51 percent of water use.
To secure sustainable water supplies, Chile has taken action to boost desalination. In 2021, the government launched a long-term mining policy mandating a reduction in freshwater use to 10 percent by 2030 and 5 percent by 2050, and in 2023, Chile enacted a law allowing the Ministry of Public Works to procure water treatment infrastructure for potable use.
Two desalination projects to serve the Coquimbo region—which has been severely harmed by Chile's water crisis—have already been conceived, with one to be tendered by the Ministry of Public Works and another by utility Aguas del Valle.
According to the Chilean Association of Desalination and Reuse, in 2023 Chile had 24 operating desalination plants, seven under construction and five that had secured environmental approval and were expected to begin construction. Eighty-five percent of desalinated water production was used by companies, and the remaining 15 percent was intended for human consumption.
However, desalination is not a one-size-fits-all solution. The process itself, and the transportation of water from the coast to mountain regions, is energy-intensive and costly. This challenge is leading to the emergence of new models for developing desalination plants—on a merchant basis or as a shared facility of multiple mining companies.
Water reuse is another solution Chile is expected to embrace. For example, Econssa, the state-run sanitation company, is looking to tender a water reuse plant in the city of Antofagasta to supply nearby mining companies. Codelco, Chile's national mining company, has committed to reducing make-up water by 60 percent by 2023, with 27 percent of the reduction coming from using desalinated water and 18 from recycled water. Further, in 2023, Chile enacted a law to allow the use of reuse water for agriculture.
In contrast with popular desalination, only 6 percent of wastewater in Chile is currently being reused.
Investment in the water sector has been deferred for too long. With climate change forecasted to stress water security in the region, public policy and private investment are expected to see a renewed focus on the industry, with an influx of opportunities. While Brazil and Chile lead the way today, we are optimistic that meaningful reforms in other countries, including Mexico, will come into play and help PPPs or other structures gain similar traction there.
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
View full image: Non-revenue water in Latin American cities (PDF)
View full image: Global progress toward achieving Sustainable Development Goals for water and sanitation (PDF)
View full image: Regional supply and demand for fresh water in Chile (PDF)
