AMERICAS PARTNERSHIP—IDB RESPONSIBLE INVESTMENT FORUM

FACT SHEET

TABLE OF CONTENTS

• Forum Overview
• IDB Announcements
• BID FOR THE AMERICAS
• Four Key Sectors
  • Clean Energy
  • Infrastructure
  • Medical Devices
  • Semiconductors

FORUM OVERVIEW

• The November 2nd “Americas Partnership—IDB Responsible Investment Forum” in Washington DC, a partnership between the Inter-American Development Bank (IDB) and U.S. Government, takes place ahead of the inaugural Americas Partnership for Economic Prosperity Leaders’ Summit. 
• The Forum will feature Heads of State from across the Latin America and Caribbean (LAC)— including from Chile, Costa Rica, Dominican Republic, Ecuador, Peru, and Uruguay—, U.S. Treasury Secretary Janet Yellen, U.S. Senators Michael Bennet and Bill Cassidy, and other government leaders, investors, and corporate representatives from the region
• The Forum will spotlight strategic trade & investment opportunities provided by greater regional economic integration, and aims to strengthen the economies of our region and build a more competitive and inclusive hemisphere by increasing supply-chain resilience, fostering innovation in both the public and private sectors, and tackling the climate crisis. 
• The Forum will highlight strategic trade and investment opportunities provided by greater regional integration, with a focus on four key sectors—infrastructure, semiconductors, clean energy, and medical supplies— as well as investor opportunities provided by the upcoming IDB Invest capital increase.
• The Forum, open to government and private sector representatives from the hemisphere, is aligned with the IDB’s recently-launched BID FOR THE AMERICAS program that fosters opportunities to trade and invest in the region and participate more in procurement opportunities financed by IDB projects. [More details on BID FOR THE AMERICAS below.]
• The IDB is the largest source of multilateral finance in the region, financing over $13 billion worth of projects annually that create up to 30,000 contracts for companies and individuals worth over $4 billion yearly.

IDB ANNOUNCEMENTS

• The IDB Group will announce at the Forum the launch of new tools for BID FOR THE AMERICAS, its program launched in September to promote business opportunities and closer economic ties between the U.S. and countries in the region. Among them:
  • US Bidder Center: A dedicated section within IDB’s ConnectAmericas, where U.S. businesses can find tailormade technology solutions (such as mobile apps, online communities, and self-assessment tools), as well as articles, videos, testimonials, and other resources to facilitate their participation in IDB-funded procurement processes, and increase their chances of success. [LINK]
  • Build the Americas App: A new mobile app where infrastructure developers can access information about IDB-funded procurement processes months and years before they are published, and connect with local companies that provide the goods and services that are needed for each project. [LINK]
  • US-LAC Business Community in ConnectAmericas.com: A new platform where U.S. and LAC firms will be able to access purchasing and selling announcements and tailor-made content aimed at strengthening business interactions between the U.S. and the region. [LINK]
• Additionally, as part of the IDB Group’s work to facilitate trade and investment in the region, IDB Invest, the private sector arm of the IDB Group, is finalizing a capital increase proposal to implement a new business model that would significantly scale its impact in the region.
  • It will do so by mobilizing a larger scale of private resources to respond to urgent development needs the region is facing in key areas, such as social issues, gender and inclusion, and climate change. 
  • IDB Invest is a leading partner for companies and investors interested in finding opportunities in Latin America and the Caribbean.

BID FOR THE AMERICAS

• The BID FOR THE AMERICAS program, recently launched this September, promotes the economic opportunities of the Inter-American Development Bank (IDB) Group’s work throughout the Latin America and the Caribbean (LAC) region. 
• As part of BID FOR THE AMERICAS, the IDB will launch and expand a number of initiatives to showcase the wide array of business opportunities arising from our operations, including: strategic partnerships, roadshows, policy advocacy efforts, and new digital connection platforms and resources.
• In its initial stage, the program is prioritizing the engagement of the U.S. private sector to showcase the wide array of business that arises from the IDB Group's operations in three key pillars: procurement, trade and investment, and co-financing.
  • Public Procurement: We will help increase the participation of U.S. firms in over $4 billion of contracts financed by IDB every year, with a focus on increasing the scope and size of U.S. procurement in the health, water, energy, transport, agriculture, and digital infrastructure sectors
  • Trade and Investment: We will leverage the IDB’s expertise and network to facilitate business connections and partnerships between U.S. and regional firms.
  • Financing: We will mobilize resources from IDB’s public and private windows to support financing of projects that involve U.S. companies.
• While U.S. firms win over 61% of all the IDB-financed contracts that they bid for—the highest success rate out of all non-borrowing member countries—they are less likely to bid for large contracts. The average contract size for U.S. firms in the infrastructure sector is US$282,000, while for Spain, for instance, it is US$4,700,000.
• In total, the U.S. exports more than $720 billion in goods and services annually to the LAC region. This is projected to grow to $1.2 trillion by 2030. The region is the first or second largest customer for goods from 40 U.S. states, supporting nearly two million U.S. jobs.

FOUR KEY SECTORS

1. CLEAN ENERGY
   • Technological developments and the need to address climate change are driving major changes in the region’s supply and consumption of energy, in the infrastructure needed to deliver it, and in the interactions between the various actors that are involved.
   • While LAC is the region with the cleanest electricity generation matrix in the world, it needs to accelerate the decarbonization process in order to reduce dependence on fossil fuels and meet the commitment to zero net emissions by 2050, as part of the Paris Agreement.
   • Emissions from the energy sector alone account for 44% of the region's total greenhouse gas emissions
   • The share of renewables in the region's electricity matrix reached 59% in 2022, higher than any other region and more than double the global average of 29%. 
   • However, the share of renewables in the region has increased only slightly over the past decade compared to the growth in demand, and the overall share of renewable energy generation has not changed significantly. 
   • Recent estimates indicate that LAC countries will need to invest at least US$50 billion per year in the energy sector, meaning an extra US$18 billion/year (average 2008-2019 barely reaches US$32 billion) over the next decade to expand and maintain the energy infrastructure needed to make progress toward the Sustainable Development Goals.  
   • At the same time, there's an urgent need to mobilize larger volumes of concessional finance and deepen our capital markets and overall financial systems, which together signal a transformative wave of investment. 
   • Beyond the immediate influx of capital, the implications are profound, including solid, sustainable economic growth and a significant increase in job creation. The energy transition also requires a harmonized institutional and regulatory framework to promote energy integration. 
   • While physical integration and regional system management can raise geopolitical sensitivities - such as guarantees on power contracts and national energy security policies - coordinating these frameworks remains a crucial endeavor.
   • Central to these policies is the commitment to a just transition that ensures no one is left behind, including the more than 16 million people in the region without access to electricity. 
   • The decarbonization process poses an opportunity for economic transformation through the creation of new jobs, the opening of new industries and the reduced exposure of the countries in the region to energy commodity price shocks. 
   • 15 countries in the region, grouped in the Renewable Energy in Latin America and the Caribbean initiative (RELAC), have set a target of achieving a 70% share of renewable energy by 2030, which implies a significant effort to increase the penetration rate of these sources.
   • The challenge of the energy transition is to integrate renewable energy sources such as solar and wind into the energy matrix on a massive scale, to manage their variability and intermittency, and to ensure the security and reliability of the system at all times. 
   • Efforts in this direction should be complemented with inclusive green growth policies and actions aimed at addressing the challenges of job and skill transformation and the strategic repositioning of the countries of the region in global value chains. Likewise, the decarbonization process must also consider the distributive effects on income, health, and environmental quality. 
   • The region must increase its participation in the sector's global value chains and ensure a secure supply network for technologies critical to the energy transition.
   • The energy transition, which is intensive in the use of minerals and metals, opens up new opportunities to optimize the contribution of the mining and energy sector to the socio-economic development of the region. 
   • A low carbon future implies tons of new minerals and metals. For instance, by 2050, global demand for lithium is expected to increase by more than 950%, driven mainly by a thirteen-fold increase in battery-based energy storage.
   • LAC is strategically positioned to supply minerals and metals for the energy transition. Because of the abundance and diversity of its high-quality and concentrated mineral resources, its experience in extracting and processing these resources, and its relative position on the global cost curve, the region has a unique opportunity to become a global supply center for minerals, but also to develop effective strategies for productive development and integration into global value chains.
   • The fiscal capacity to support key policies is a primary constraint confronting most of the APEP economies. New strategic alliances between APEP countries will be indispensable, serving as channels for the exchange of knowledge, technology, and best practices. 
   • The region’s governments must act decisively to create an environment conducive to private investment. Central to this effort is the strengthening of institutions responsible for overseeing energy sector operations and governance.
2. INFRASTRUCTURE
   • Sustainable Infrastructure powers economic and social development. Energy, transportation, telecoms, water and sanitation, social (education and health), and digital infrastructure services are essential for people’s wellbeing, for companies’ competitiveness, and for achieving sustainable growth.
   • In line with Sustainable Development Goals (SDGs), LAC countries must invest at least an amount equivalent to 3.1% of its GDP annually to the energy, water and sanitation, transportation, and telecommunications sectors (this figure would increase significantly if social infrastructure and more aggressive targets for a just energy transition were incorporated).
   • The region’s current investment rate in infrastructure barely reaches 1.8% of its GDP (average 2008-2019), resulting in an annual financing gap of at least US$60 billion. 
   • This figure represents a 70% increase in the average annual investment rate of the past decade and underscores the magnitude of the effort required to address this critical need. 
   • There is enormous potential for financing by private actors. Institutional investors in the region—especially pension funds, mutual funds, and insurance companies—handle assets of US$ 1.5 trillion (close to 30 percent of regional GDP), but they invest less than 1.1 percent of the total in infrastructure assets.
   • The costs of underinvestment in infrastructure are extensive: after 10 years without additional infrastructure investment, economic growth falls by 15% on average relative to its potential; it is also regressive as the poorest households would lose a larger share of real income than the richest households. 
   • Chronic underinvestment has historically compromised both access to and the quality of infrastructure services in the region. 
   • Infrastructure has great potential for job creation. In LAC, infrastructure services account for 50 million jobs (14.2% of total employment). Infrastructure investment generates, on average, 35 direct jobs for every million dollars invested, and up to 48 to 99 jobs when also accounting for indirect effects.
   • Infrastructure services can contribute to reducing greenhouse gas emissions. These sectors are crucial for achieving net-zero emissions and complying to the commitments outlined in the Paris Agreement.
   • Despite concerted efforts to increase access to these services and to close the urban-rural divide, there is still much work needed to achieve universal coverage. While more than 99% of the urban population had access to electricity in 2019, these figures lag at 93% in rural areas (but also hide important differences by countries). Access rates to sanitation services are lower at 88% and 72% on average in urban and rural areas respectively.
   • Despite positive developments in the quality of infrastructure in most countries, the region still fails to provide high-quality infrastructure services. The region’s index of perceived infrastructure quality is lower than that of other regions in the world, except only for Sub-Saharan Africa and South Asia. This affects both individuals and firms. For instance, on average in LAC, 59% of firms experience electrical outages and 32% identify electricity as one of their major constraints.
   • Infrastructure services are unaffordable for many. Infrastructure services, after food expenditures, comprise the most significant budgetary component of the household consumption basket for all income groups. Households in the lower half of the income distribution spend more than 14% of their income on infrastructure services. The region’s households also spend more on infrastructure services than those in any other developing region.
   • Infrastructure services are particularly vulnerable to the effects of climate change. Extreme weather events as well as changes in global temperatures affect both the demand and the supply of infrastructure services, increasing the need for sustainable and resilient infrastructure services.
   • Even though electricity access rates are high on average, the number of people without access is large. For instance, the population without access to electricity exceeds 1.5 million people in Colombia and Mexico (with access rates of respectively 97% and 99%).
   • LAC countries in APEP need to allocate at least 2.7% of GDP annually to infrastructure in order to reach SDGs by 2030. This is slightly lower than the average for the entire region. There are still important disparities between countries, with for instance Ecuador needing an investment of 4.9% of GDP and Uruguay needing 1.6%. 
   • LAC not only needs to invest more in infrastructure, it also needs to invest better. The infrastructure sector needs to be rethought, reformed and updated, and urgent changes should be made to its governance so as to increase its productivity and competitiveness—with a renewed focus on social and environmental sustainability. The region needs a new sectoral architecture (institutions, regulatory agencies, ministries, commissions, processes, and instruments) to ensure that service provision meets the demand in quantity and quality, while at the same time promoting efficient schemes to provide services at affordable and equitable prices.
3. MEDICAL DEVICES
   • The medical device industry, or MedTech, is composed of the companies that develop, manufacture, and distribute the technologies, devices, equipment, diagnostic tests, and health information systems that are transforming health care through earlier disease detection, less invasive procedures, and more effective treatments.
   • MedTech is a high-tech, high-value industry that is also highly regulated and produces a diverse array of products from simple consumables like bandages to complex capital equipment such as MRI machines. Products made by this industry can be classified into six broad categories: Consumables, Disposables, Surgical and Medical Instruments, Therapeutic Devices, Capital Equipment, and Other Devices. The level of complexity and value varies across these categories, with consumables and disposables at the lower end of the spectrum and large-scale capital equipment at the higher end.
   • The region already plays a significant role in MedTech. The US represents 40% of the global market revenue and is the main driver of trade for this sector, being both the largest exporter and importer. Canada is a relevant global player that represents 1.8% of global market, and the Latin American and Caribbean region is also a player in MedTech’s global value chain, mainly through the role that APEP countries like Mexico, Costa Rica and the Dominican Republic play as relevant suppliers in several product segments. The region is positioned to operate in all stages of the MedTech value chain, from research and development, components production and assembly through to distribution.
   • The industry is currently largely controlled by multinational corporations (MNCs) primarily headquartered in developed regions such as the United States and Europe. These firms often adopt a vertically integrated model encompassing everything from Research & Development (R&D) to assembly.
     • This approach is driven by the need for stringent intellectual property protection and regulatory requirements that hold the brand responsible for quality and risk. While in-house production is the norm, particularly for critical components, there is a growing trend towards contract manufacturing, especially for devices requiring electronic capabilities or facing lower regulatory hurdles.
   • Recent labor shortages and increasing wages in the U.S., exacerbated by the pandemic, have pushed these firms to reconsider their sourcing strategies. This has led to a rise in offshoring, particularly to geographically proximate and trusted locations like Mexico, Costa Rica, and the Dominican Republic, where export-oriented clusters have developed for the manufacture of products mainly in the lower risk, high volume segments.
     • As a group, these 3 countries account for the largest supplier group of lower cost products in disposables and surgical instruments for the US market. This strategic realignment aims to balance cost considerations while maintaining stringent quality and regulatory standards.
   • The MedTech industry holds significant economic relevance, serving as a cornerstone for healthcare systems while acting as a key driver for economic growth and innovation. Characterized by high levels of research and development, the industry not only creates high-value employment opportunities but also contributes extensively to exports and foreign direct investment.
   • The global medical devices market size was valued at USD 512.29 billion in 2022, with North America as the largest regional market, valued at USD 196.17 billion. The global market is projected to grow from USD 536.12 billion in 2023 to USD 799.67 billion by 2030, exhibiting a CAGR of 5.9% during the forecast period. 
   • Traditional manufacturing hubs in the US and Europe still represent over 70% of medical device exports across all categories, but they’ve seen a 13% market share decline in the past decade due to the rise of offshoring. Emerging key players from the Americas (Mexico, Costa Rica, and the Dominican Republic) and Asia (China, Malaysia, Singapore, South Korea, and Vietnam) account for nearly half the industry's trade growth in this period.
   • Despite advancements in the medical device industry, the high cost of these devices, encompassing acquisition, regulatory approvals, and maintenance expenses, remains a significant barrier. Advanced devices, which include components like chips, batteries, and sensors, incur additional replacement costs. These high costs present ownership challenges for hospitals and surgical centers. Coupled with insufficient reimbursement policies in emerging countries, these financial obstacles hinder the widespread adoption of medical devices.
   • The US government's focus on medical devices' supply chains is intensifying, mainly through increased scrutiny from the FDA. With the extension of the 2020 CARES Act, the FDA now holds authority to oversee crucial supply chains in this sector, leading to the initiation of the Resiliency Supply Chain Program. Concurrently, there's a political push for regionalizing production to strengthen supply chains. However, most firms indicate that disruptions had short-term impacts only. Reshoring production has been challenging due to the US's labor shortage, with younger workers seeking better conditions and pay. Consequently, nearshoring could become an even more prominent production strategy for the industry.
   • The main opportunities that can be derived from the expected growth of the industry for the region, especially regarding manufacturing activities, are around the countries that already participate in MedTech value chains, although there may be niches that lend themselves to the entry of new countries into the chains. The opportunities for these countries can be grouped into the following areas:
     • Expansion of the current product portfolio where the region is already a relevant supplier for the North American market, leveraging the existing capabilities of countries in the region. This can range from low-complexity, high-volume consumable, and disposable products to medium and high-complexity products in surgical and medical instruments and therapeutic devices.  
     • Development of local and regional suppliers that can be integrated into the supply chains, mainly in areas with lower technical and regulatory requirements, such as secondary packaging materials, labels, sleeves, and plastic rolls for primary packaging, and in niches of interest where local capacities can be developed, such as plastic molding, precision metal work and technical and engineering services.
     • Scaling up to higher value-added products and processes in the existing chains, which entails expanding countries capabilities to handle higher levels of requirements and regulatory and technical complexity.
   • Numerous policies and programs must be put in place to overcome constraints and effectively take advantage of the opportunities presented. Policies towards human capital development in industry specific skills to enhance availability of qualified labor are of fundamental importance and should be a priority. 
   • Another critical element to boost the competitiveness of the region will be the localization of upstream supply. Currently, most upstream inputs and services must be sourced from the US or Asia; development of a local and regional supply base can lower costs and improve competitiveness against alternative production locations.
4. SEMICONDUCTORS 
   • The intricate global semiconductor supply network has evolved over the past three decades: there are more than 30 types of semiconductor product categories, with different sizes and levels of complexity; semiconductor manufacturing typically requires up to 300 different inputs, as well as more than 50 types of highly engineered precision equipment and tools supplied by highly specialized companies that are also located in different parts of the world.
   • The competitive positioning of LAC countries, in general, and of the APEP countries, in particular,  is relatively limited in the global semiconductor industry. But given the possible reorganization of the industry globally, there is a possibility that some of the APEP countries will capture market share as companies in the US and elsewhere look to diversify and/or relocate some of their operations, particularly with the aim of complementing new investments that are being developed in the US
   • Global semiconductor sales in 2021 of US$555.9 billion represented a record growth of 26.2% over 2020 sales of US$440.0 billion. Moving forward, strong demand growth rates of between 4% and 14% are often forecasted.
   • The ubiquity of semiconductors is reflected in their multiple uses. For example, the share of global demand by end use is 32% in PC/computer, 31% in communications, 12% in automotive, 12% in consumer products, 12% in industrial use and 1% in government
   • Because semiconductors are highly complex products to design and manufacture, large investments in R&D and capital are required. Globally, investment in R&D represents 22% of annual semiconductor sales to electronic device makers, while capital expenditures represent 26%.
   • The most basic scale for a semiconductor manufacturing plant with the capacity to produce 50,000 wafers per month operating 24 hours a day, 7 days a week, would require a minimum investment of US$15 billion, the largest part in the purchase of specialized equipment.
   • Globally, there are production risks from single points of failure due to events such as natural disasters, infrastructure shutdowns, machine breakdowns, pollution or strikes, among others. Those risks are exacerbated as the industry concentrates in a few geographic locations.
   • Geopolitical tensions, international conflicts or wars can lead to export controls that impair access to critical suppliers of essential technology, tools and products that are clustered in certain countries. Such controls could also restrict access to significant external demand, which could result in a loss of economies of scale and reduce or eliminate the profitability of an investment.
     • To examine the potential opportunities for APEP countries it is worth looking at the different stages of the supply chain and the main factors that define competitiveness at each of these stages:
     • The “design” stage: According to Deloitte, a talent shortage is looming. The industry currently has more than two million direct employees worldwide, but more than one million additional skilled workers will be needed by 2030, equivalent to more than 100,000 per year. Some of the potential shortage of talent could be fulfilled by APEP countries, particularly in cities with a large pool of graduates in areas of engineering and careers related to electronics. These cities in the APEP countries could focus on attracting investment in the form of centers for design and development of technologies at different levels of complexity.
     • The “manufacturing” stage (wafer fab):  The barriers to entry are very high. Furthermore, this stage is of strategic interest for the US to develop in its territory. Therefore, rather than competing with the US at this stage, the most logical strategy for the APEP countries is to complement the new investments being developed in the US, particularly with support through the other stages of the supply chain. 
     • The “assembly, packaging and testing” stage: While the investment levels and potential incentives for this stage are also considerable, they are much lower than in manufacturing. Previous experiences in APEP countries (in the case of Mexico with the presence of Skyworks and previously Kyocera, and in Costa Rica with Intel) show that the competitiveness gap for this stage is not insurmountable for some of the APEP countries.
     • Further, chip manufacturing requires a large number of intermediate inputs and equipment, from raw materials to chemicals, tools, and accessories. Even at this stage, technical capabilities are often very high, and suppliers are usually very specialized companies with an established track record. Consequently, a logical strategy is the promotion and attraction of FDI projects from these specialized suppliers for setting up subsidiary plants in the APEP region with the motivation of establishing themselves relatively close to the new manufacturing operations that are being developed in the US.
   • Given the magnitude of the investments and the complexity of the operations, project location decisions in this industry are normally made with a long-term horizon. Cost competitiveness, a business-friendly investment climate, improvements in infrastructure in terms of water supply, electricity, transportation, and logistics are also some of the factors that tend to influence how attractive the region is for the investments in this industry.