Global Finance: Tell us about Uzbekistan’s transformation over the past eight years and what else you are looking to accomplish.

Laziz Kudratov: The changes that started in 2016 continue. We have seen GDP rise by 6% in 2023 and 6.4% in the first half of 2024. Along with a more business-friendly environment, key reforms, such as reducing VAT from 20% to 12% and creating special economic zones, we have strengthened our position as an attractive destination for foreign investors.

We have unified the exchange rate and liberalized the forex market, making it easier for international partners to do business here, including through public-private partnerships and outsourcing. We have also become a hub for IT with the creation of the Tashkent IT Park; and our first unicorn, Uzum, an e-commerce platform, is now valued at over $1 billion.

On the green energy front, we are striving to become a leader in Central Asia. We have recently secured a $13.1 billion investment from ACWA Power for 9.6 GW wind and solar power projects, and we partnered with Masdar for 2 GW green projects with investments of $1.7 billion, which is a key part of our broader effort to increase the share of renewables in our energy mix. In total, 35 agreements for green energy projects with a total capacity of 18.6 GW have been signed over the past four years—an essential step toward creating a more sustainable energy future.

Moving forward, we plan further legal reforms aimed at solidifying investor rights, enhancing transparency and improving business efficiency. By integrating more closely with the global economy, particularly through WTO membership, Uzbekistan aims to become a dynamic economic force regionally and globally.

GF: Uzbekistan is Central Asia’s most diversified economy. Has this been an advantage in driving growth?

Kudratov: Diversification sits at the heart of all our modernization efforts, allowing us to remain resilient in the face of an increasingly volatile global economy. By ensuring growth across multiple sectors with the support of international investors, we are positioning for long-term, sustainable development. This balance between established industries and emerging sectors is driving our progress.

We have built upon our traditional industries, such as textiles, mining, and agriculture. In the textile sector, we created Specialized Textile Industrial Zones, designed to attract investments by offering favorable operating conditions. Since the reforms began in 2017, the sector has welcomed investments totaling $9.8 billion. Today, as in the past, Uzbekistan is Central Asia’s textile hub.

We also have a highly developed mining industry. The Navoi Mining and Metallurgical Company (NMMC) ranks among the top four gold producers globally, while the Almalyk Mining and Metallurgical Complex (AMMC) is a leading global copper producer. The agricultural sector has been transformed, with several programs implemented to boost trade and provide farmers with access to essential technology, supplies and funding.

Manufacturing has seen a significant boost, contributing over $55 billion to the economy in 2023. Today, automotive firms such as BYD, KIA, and GM are producing cars in Uzbekistan, making us the leading car producer in Central Asia. In the electronics sector, in partnership with Samsung, an enterprise was established for production of electrical appliances, with investments of half a billion dollars. The chemical industry, built on abundant mineral resources, is benefiting from modernization efforts and government initiatives. From 2017 to 2023, we attracted $9.7 billion in FDI, with companies such as AIR Products and Casale building facilities here.

Meanwhile, Uzbekistan’s building materials industry is booming in response to growing demand. Over $8.7 billion has been invested by international companies in cement plants, glass factories, and rolling mills between 2017 and 2023.

We have also made a conscious effort to develop new sectors such as pharmaceuticals, IT, and renewable energy. IT sector expanded rapidly, with the IT Park exporting $344 million in IT products and services in 2023. These sectors are quickly becoming key pillars of our economy.

Total FDI in electricity over the last six years has amounted to an impressive $10 billion, and we are aiming to increase generating capacity coming from renewable sources to 20 GW by 2030, ensuring that green energy is about 40% of the total.

GF: The recent Central Asia summit saw the countries of the region commit to regional integration. How realistic is this given Uzbekistan’s historic close relations with Russia—and have we started to see evidence of it yet? 

Kudratov: Uzbekistan has prioritized strengthening ties with its neighbors and fostering regional collaboration, with particular focus on diplomatic initiatives like Consultative Meetings of Central Asian Leaders, border demarcation, visa liberalization, initiatives stimulating regional trade and certainly economic cooperation.

Integration priorities include regional connectivity, water resource management, energy and security cooperation, as well as cultural and educational exchange.

The recent Summit marked an important step toward deeper regional integration. Uzbekistan is actively focusing on improving trade routes. One key example is the China-Kyrgyzstan-Uzbekistan railway, which will be crucial in facilitating trade within the region and beyond.

GF: In terms of attracting FDI and other investments, what are Uzbekistan’s main advantages? 

Kudratov: Uzbekistan offers three key attributes that make it a highly attractive destination for FDI.

Third is our reforms. Our more business-friendly environment includes customs duty exemptions on over 7,000 raw materials, a three-year tax exemption on dividends for foreign investors, and a lowered profit tax rate of 12%. We have also strengthened legal protections for foreign investors, ensuring their businesses are both secure and welcomed in Uzbekistan. Our inclusion in the OECD’s Regulatory Restrictiveness Index highlights our growing competitiveness.

Between 2017 and 2023, Uzbekistan utilized $60.9 billion in FDI and non-guaranteed loans, which funded large-scale projects across both sectoral and regional programs. We are continually striving to create a business ecosystem that is dynamic, inclusive, and future-ready.

GF: The plan is to attract some $250 billion in investment by 2030. How realistic is this?

Kudratov: Our goal is ambitious, and it is not something we can achieve alone. Uzbekistan is moving forward, and we are making it one of the best places to do business. But we need partners who share our ambition. The opportunities are here, the workforce is ready, and the incentives are in place. This is a chance to be part of something big, something transformative. Together, we can build an economy that benefits everyone.

The institutions in our 50 Safest Emerging Markets Banks rankings are facing a challenging operating environment from rising geopolitical tensions, potential disruptions of global trade, and commodity price volatility. Many banks have posted solid operating performance in recent years, as successive interest rate hikes reduced inflation in their regions and globally and also boosted profitability with expanded net interest margins. Now, as central banks begin to ease interest rates to support their respective economies, the banking sector will focus on sustaining profitability in a lower-rate environment by expanding their loan portfolio and other products.

In the Asia-Pacific region, China’s economy continues to struggle, burdened by a depressed real estate market and weak consumer demand. Growth forecasts indicate further deterioration, with projected GDP of 4.9% in 2024, down from 5.2% last year and falling to 4.5% in 2025, according to the Organization for Economic Co-operation and Development (OECD). Further deterioration in the Chinese economy presents a risk of contagion regionally and globally, with trade disruptions.

South Korea is vulnerable under this scenario, as China is one of its largest trading partners. But the country is on solid footing, bolstered by a strong consumer-technology sector and a semiconductor industry that is enjoying record exports. The South Korean banking sector’s strength is evident in our rankings, holding the top three spots and placing eight banks among the top 15. However, with the OECD’s GDP growth outlook for 2024 revised downward slightly from the organization’s earlier forecasts, to 2.5%, policy makers at the Bank of Korea are looking to ease interest rates.

Taiwanese banks are also well represented in our ranking and place eight institutions among our Top 50. Taiwan’s critical role in the semiconductor sector, combined with trade tension between the United States and China, carries its own set of geopolitical risks.

Chinese banks hold nine positions on our list, up from eight last year. China Merchants Bank is a new entrant.

In the Middle East, which places 18 banks across four countries in our Top 50 Emerging Markets rankings, the danger of a widening conflict between Israel and other Middle Eastern countries poses significant risks to the region’s banking systems and economies. As China’s demand for oil has declined, given its weakening economy, any escalation in the current war could potentially destabilize the oil supply from the region.

Year-to-year changes in our rankings are the result of a number of factors, including expected ratings fluctuations and other elements of our selection methodology. While Emirates Development Bank has a smaller balance sheet than its emerging markets peers on this list, it enters our ranking this year at No. 5 because it now has an asset size that puts it among the top 500 banks with two agency ratings—a requirement under our methodology. Additionally, the bank’s ranking was bolstered by an upgrade to AA by S&P in May.

In many instances, upgrades to a country’s sovereign ratings have a follow-on impact on the ratings of their banks, given the increased ability of the government to support the banking sector. This is the case in Qatar, where Fitch upgraded the sovereign rating to AA in March and subsequently boosted the ratings of seven Qatari banks, five of which are represented in our rankings. Qatar National Bank thus moved up five spots to No. 7, while Qatar Islamic Bank rose 11 places to No. 30. New entrants as a result of this sovereign upgrade include Dukhan Bank at No. 44, Qatar International Islamic Bank at No. 46, and Ahli Bank at No. 47.

In South Korea, a Moody’s upgrade of Suhyup Bank last November helped it to rise 10 spots in our ranking to No. 32. UAE-based Mashreq Bank rose seven places to No. 42 as a result of a Moody’s upgrade in May 2024. Year to year, industry consolidation is a frequent catalyst for position changes, and Ahli United Bank is no longer represented following its acquisition and integration by Kuwait Finance House, now at No. 37. China Merchants Bank is also a new entrant at No. 48 following an S&P upgrade to A- in March. Consequently, these events and upgrades pushed Banque Saudi Fransi, Arab National Bank, and Saudi Awwal Bank out of the rankings. It’s important to note that, with these upgrades, the score cutoff for inclusion in our 50 Safest Emerging Markets Banks rose to 13 points from 12.5 points last year.

A small West African country that is one of the world’s biggest phosphate producers, Togo displays a resurgent economy and the prospect of more to come. Its industrial sector is reviving after a long period of stagnation, new investors are coming in and those already ensconced are expanding operations.

The picture is clouded by security challenges arising from attacks by bandits in the northern region and sea pirates’ raids on the coastal south. Rising resentment of a decades-old political hegemony compounds the threat of instability. Together, these issues could pose significant threats to economic growth and social progress, analysts warn. 

None of which, however has thus far discouraged foreign direct investment. A leading foreign company operating in Togo is Heidelberg Material, which is planning new investments in environmental and industrial sectors and funding sustainable solutions in cement production using alternative materials.

Agriculture is attracting investment, as well. Olam, the Singapore-based agro-food group, acquired a 51% majority stake in Nouvelle Société Cotonnière du Togo (NSCT) for €15.3 million in 2021 as part of the government’s privatization of the state-owned cotton company. Designed to boost cotton production, which had declined due to bad weather in the north and poor seed quality, the deal left the government and the federation of cotton farmers with a 24% and a 25% stake in the company, respectively.

Last year, another Singaporean company, NutriSource, started NPK (nitrogen, phosphorus, potassium) fertilizer production in Togo. The new plant is part of a bigger project valued at CFA4.9 billion ($7.8 million). In the energy sector, France’s TotalEnergies is the leading retailer of petroleum products.

Chinese and South Korean companies are operating in Togo as well, including Leopard Moto (bicycle sales), Amina Togo, West Africa Battery (batteries for bikes and cars), YSO Dairy Products Manufacturing, Sofina (nylon thread, fishing nets, spool thread, packages, ropes) and China Sinomach-Hi West Africa (equipment manufacturing).

A lively FDI contribution gives Togo a favorable economic outlook, augmented by structural reforms and critical investment projects, according to the African Development Bank.

The AfDB expects real GDP to grow 5.3% in 2024 and 6% in 2025, driven by a dynamic agricultural sector and private investment, although the International Monetary Fund projects growth to “soften” slightly to 5.3% over 2024-2025 due to fiscal consolidation before recovering to its long-term trend, projected at 5.5% annually.

The rating agencies, too, paint a positive picture on balance. In a note published in September, Moody’s upgraded Togo’s economic outlook from negative to stable and maintained its B3 rating for foreign and local currency borrowings. Moody’s cited improved budget management as a key reason for the upgrade, noting a reduction in the public deficit from 8.3% of GDP in 2022 to 6.7% this year. Standard & Poor’s had previously reported a positive economic assessment.

Togo’s National Development Plan 2021-2025, also known as the Presidential Roadmap, provides the fulcrum for its economic transformation, stating as its goal to “help develop innovative and sustainable solutions to identify financing resources, attract more investments with great socioeconomic impact and consolidate [the country’s] strategic positioning.” The road map also envisions developing infrastructure to support economic activity, including transportation and energy, and enhance economic stability through higher government spending and private-sector investment.

Underpinning these projections is some solid infrastructure. Togo has one of the best ports in West Africa; in three years, the Port of Lomé has achieved a significant drop in congestion thanks to improved berthing windows, maintaining a 48-hour ship turnaround time. As a result, it has become a port of choice for importers even from Nigeria as well as for landlocked countries in the Sahel region, including Niger and Burkina Faso. 

However, the opposition parties have accused the ruling party, Union for the Republic, of playing gimmicks with the change, which they say was designed to increase President Faure Gnassingbé’s stay in office through a shift in title. Togo’s next presidential election is slated for next year.

All this suggests future political instability that may threaten Togo’s economic achievements, if it has not already, Marcel Okeke, former chief economist of Nigeria’s Zenith Bank warns: “Togo is contending with a political hegemony that is stagnating the country’s economic progress.”

Mexico continues to post record numbers for many of its economic indicators. And with what is projected to be a $30 billion-$40 billion nearshoring bonanza in its sights, financial institutions of all sorts are rushing to stake their claim.

The $644 billion-in-assets banking sector remains dominated by a few brick-and-mortar, multinational giants. BBVA México, Santander, and Banorte account for nearly 50% of the market, while Banamex, HSBC, Scotiabank and Inbursa contribute another 27%. But 66 million Mexicans, or 51% of the population, remain unbanked, creating cross-border payment and remittance opportunities for nearly 1,000 fintech startups.

Now is the time for anyone who wants to be in Mexico for the long term, specifically in the finance sector, according to Gilberto García, partner at Miranda Financial Advisory. “If you wait because you don’t know what’s going to happen when there’s more certainty, you’re going to tell yourself you should have done this before.”

Online-only neobanks have begun to have a significant impact. Although they haven’t broken into the upper echelons of Mexico’s financial market yet, they are promoting greater competition and improved access to financial products.

Described by CNBC as “one of the most disruptive companies in the world,” Kapital Bank is one such neobank.

A year ago, it acquired a nearly 50-year-old Mexican automobile loan provider, Grupo Autofin. Having injected $50 million to date into the lender, Kapital has watched deposits double from 3 billion Mexican pesos (approximately $150.3 million) to more than 7 billion pesos, says co-founder and CFO Fernando Sandoval.

“Since we took over banking operations, usage has almost tripled,” he adds. “Instead of competing with commodities, we decided to compete with technology.”

Concentrating on small and midsize enterprises (SMEs), Kapital saw a need for a one-stop solution for businesses. It now offers over 15 services via its Automated Intelligence Dashboard (AID) all day, everyday.

“SMEs represent almost 70% to 80% of all employees in each Latin American country and they produce 50 to 60% of GDP, but they only receive 15% of the finance [from financial institutions],” Sandoval notes. “The only ways to grow are through friends and family or the usual providers [legacy banks and traditional financial institutions].”

Meanwhile, Kapital has expanded into Colombia and looks to exploit market similarities in Peru, Chile, Argentina, and Brazil as well.

Traditional banks like BBVA and Santander are highly dependent on Latin America—more than half of BBVA’s roughly €5 billion net profit came from Mexico last year—and they have clearly heeded the warning from the fintech camp. Banorte launched an online expansion this year via Bineo, its first fully digital banking platform. Santander’s Openbank and Banco Regional’s digital platform and app Hey are also now in the market, while at least five foreign banks, including Plata, Banco Masari, Banco ION, Konfio and Nu are awaiting licenses.

In May, Citi took a minority stake in trading platform operator Cicada Technologies, which trades 28 Mexican government bonds and plans to expand to other types of securities. At the same time, industry observers continue to eye Citi’s separation from Banamex ahead of a 2025 IPO.

“We need to stop thinking the bank is an impediment and start thinking the bank is going to be an enabler,” says Kapital’s Sandoval. “Mexico is a big bet right now, but each country has its own rules. Why was Walmart successful here and Carrefour wasn’t, but in Argentina it was the opposite?”

Making the most of financial services opportunities afforded by Mexico’s prospective economic expansion will take a collective effort, however. For all sides of the banking industry to continue to develop, better consumer education is needed, he argues. To fill that need and reduce costs, tech startups, legacy banks and everyone else must work together.

Latin America has established itself as a magnet for fintech investment.

The region received $15.6 billion in investments for financial technology providers over the past 10 years, with Brazilian companies making up 66.7% of the total, according to consultant Distrito’s Fintech Report 2024. Digital services—e-wallets, accounts, and digital banks—attracted the most money, with $5.3 billion. But the most numerous deals, and those most often targeted for acquisitions, were in credit fintech, with 477 reported.

“The region has a large unbanked or underbanked population,” notes Andrés Fontao, co-founder of Finnovista, a Mexican venture capital firm focused on fintechs. “A significant portion of the population, both consumers and small to medium-sized enterprises, still lack full access to traditional financial services, creating a substantial opportunity for fintechs offering innovative and accessible solutions.”

Distrito charted 1,658 rounds of financing in the decade through first-half 2024, including 1,034 in Brazil. But this year alone, through June 30, has seen 83 deals worth $800 million, equal to 80% of all investments in fintechs in 2023. The two largest rounds this year were from QI Tech and Celcoin, for $250 million and $150 million, respectively. The QI Tech offering turned it into a unicorn, with an estimated value of over $1 billion.

Explaining the success of the company he co-founded six years ago, QI Tech CFO Marcelo Bentivoglio notes, “We have been growing more than 100% per year and held 300 clients, the biggest of each sector. I think we filled a gap in the financial market, as the company is focused on technological infrastructure for credit, banking, payments, collections, onboarding, anti-fraud, and all the necessary tools to boost financial services.”

Regulation and innovation have been key factors, he says.

QI Tech helps companies from different segments set up digital banks and provide financial products to their customers. If a company in retail, for example, wants to open a finance company offering payment options, billing, and credit issues, it can do so using QI Tech’s infrastructure. That, in a nutshell, is banking as a service (BaaS), which enables non-financial institutions to partner with QI Tech—or one of its rivals—to offer financial services to end users. BaaS started with tech companies that license their software for a monthly payment (SaaS) rather than selling a full operational software package for a one-time payment.

Last December, QI Tech purchased brokerage firm Singulare, which has $120 billion Brazilian reais ($24 billion) in custody. That acquisition came on the heels of an announced investment of R$1 billion ($200 million) in QI Tech in a Series B round led by General Atlantic with the participation of an existing shareholder, Across Capital, which is doubling its initial investment in the company.

Latin America counts 2,712 active fintechs, the majority in Brazil (58.7%), followed by Mexico (20.7%), according to Distrito. What gives Brazil such a strong lead? First, it’s region’s most populus country, and second, the Central Bank of Brazil contributes a lot to regulating fintechs, a process started more than 20 years ago. Without regulation, fintech services would not be allowed.

“As five banks concentrated 80% of the financial services, the competition was really low,” says Diego Perez, president of the Brazilian Association of Fintechs (ABFintechs). “In 2013, there were only two means of payment, and today we have more than 200 agents offering this service. As a result, there is more competition, and it’s positive for customers.”

Not everyone succeeds. Statistics from ABFintechs reveal that for every 10 new fintech companies, two will be successful in five years. This is similar to the public market equivalent for Brazil as a whole: 80% will fail and 20% will survive. In contrast to a decade ago, big banks are now joining successful fintechs for acquisitions or even collaboration.

“We are still in the beginning,” says Perez.

While the majority of Brazilian fintechs are focused on means of payment, in Colombia entrepreneurs are exploiting mainstream banks’ reluctance to provide credit for the bulk of the population. They are busily filling a niche between the banks and the coterie of illegal lenders known as “drop-to-drop,” which typically lend money at abusive rates of interest to needy people. 

“Those moneylenders applied up to 280% of the original value of money credited in 24 hours, which is extortion,” says Eduardo Montañes Silva, CEO of Bogotá-based consultant LiSim International. “In the legal system, it’s around 2.5% monthly. So fintechs became a suitable option for millions of people.”

While a traditional bank can take five days to approve a loan, fintech startups have found a practical way to lend money in two hours.

The Colombia Association of Fintechs has around 200 members, but estimates the country has 300 fintechs in all. Many are small operations with little investment, making growth difficult in the short- to medium-term. In this scenario, Montañes foresees, it will take a wave of mergers and acquisitions to develop the business.

“If two small companies join, they together can have more clients and attract more investments,” he says. “Colombia is an opportunities country and foreign investments are very welcome.”

Argentina poses greater difficulties, due to high inflation and a lack of circulating money. Fintechs there are focused on means of payment and investing in services that help customers protect their money, such as Mercado Pago, a digital wallet and payments platform, and Ualá, a mobile app used for managing Mastercard prepaid debit cards.

Regulations focus on the means of payment, banking transfer, and new technologies for mobile banking. “Both banks and fintechs are unable to offer credit, so they have to think about other services,” says Fausto Spotorno, director of consultant OJF & Asociados and director of UADE Business School.

Regulation makes a significant difference in Latin America, notes Finnovista’s Fontao, and countries are at different stages of development in this respect.

Mexico is a standout with its 2018 Fintech Law, the first in the region to lay out a clear legal framework, facilitating innovation and the entry of new players into the market.

“This law focuses on the widespread adoption of open banking and creates a safer environment for consumers and businesses,” Fontao says. “Countries like Chile and Peru are taking a more gradual and consultative approach, with recent efforts to strengthen fintech regulation and improve competitiveness in the sector.”

The pros of investing in fintechs in Latin America, he adds, are a strong talent pool, increasing access to technology, a young and adaptive population, and continued interest from investors themselves. “However, there are still some challenges to face in the region, such as the underfunding of the ecosystem compared to, for instance, the US; economic uncertainty; lack of access to funding in some regional markets; and political volatility.”

That said, Latin America’s fintechs are robust and growing, despite economic, political, and regulatory barriers. With appropriate investment, technological innovation, and a proper regulatory environment, the sector expects to continue positioning itself as an important agent in the region’s economy.

Multinational and behemoth private banks increasingly view Latin America as a cornerstone of their growth strategy.

Recently, global giants including Citi, UBS, BBVA, and Santander have revamped their teams and opened new divisions in the region, aiming to leverage their leading global offerings for a larger piece of the wealth pie. Meanwhile, local players such as BTG Pactual and Bradesco have been opening their wallets to increase the breadth of their services in asset classes and geographical reach.

The ultimate prize is an evolving market projected to reach $1.3 trillion in assets by 2029, according to a recent report by Research and Markets. “Banks need to grow, and there’s little room for that in markets such as China or Europe right now,” explains William Trout, director of Securities and Investments at Datos Insights.

Getting to the pot of gold at the end of this particular rainbow may prove challenging, however, as the investment preferences of Latin America’s superwealthy grow more sophisticated.

“As individuals become wealthier, their needs become ever more global,” says Alfonso Castillo, global head of Santander Private Banking. “They tend to increase investments in hard currencies while seeking a more sophisticated, comprehensive value proposition.”

These evolving demands do not replace but rather add to the “complexity of wealth in Latin America,” argues Trout. “The interconnections between businesses and families and the way the relationships are structured make the landscape particularly complex, and good planning an imperative.”

The region also faces structural changes in both demographics and wealth composition, says Antonio Gonzales, head of Latin America at Citi Private Bank. “Women already control more than half of the financial decisions in the business ecosystem in several countries, contributing to a more diverse and profound decision-making process when it comes to preparing the next generation of wealth owners.”

Furthermore, as customer needs grow more complex and global, traditional family offices are progressively looking to the big banks for support in meeting parts of their function.

“Although a family office has many advantages, it doesn’t always have the scale and resources of a private bank,” Santander’s Castillo notes. Last year, Citi Bank’s proprietary research found that just 30% of investments from family offices in Latin America were directed toward their own region, whereas 80% of investments from their counterparts in the US and 54% from Europe, the Middle East, and Asia remained within their respective geographic boundaries.

Yet, despite banks’ growing ability to provide more tailored services, there are no signs that the family office model is being abandoned. “I don’t see banks gobbling up family offices anytime soon,” says Datos Insights’ Trout. In fact, the number of single-family offices in Latin America serving one family exclusively, grew by an astonishing 200% over the past decade, according to recent research by Capgemini.

To meet the plethora of evolving needs, banks have been pouring massive investments into the region.

Under Gonzalez’s leadership, Citi Private Bank recently laid out an ambitious plan to double its LatAm presence.

“Considering the estimated projections of wealth generation in the region,” he says, “we believe it is possible to double our business in Latin America in the medium- to long-term, focusing on UHNW [ultra high net worth] individuals and families with at least $25 million.”

Boosted by its takeover of Credit Suisse early last year, Swiss powerhouse UBS recently made its LatAm division an independent unit, “recognizing its significantly increased size and potential,” the bank said in a memo.

Similarly, Santander has added 90 new private bankers to its Latin America-focused Miami office and in Mexico. The Spanish financial services giant expects to reach €500 billion ($556 billion) in assets under management (AUM) by 2025 and sees Latin America accounting for the bulk of that growth.

Aiming to boost clients’ already growing demand for global investment products, Brazilian behemoth BTG Pactual has gone on an acquisition spree. Recently, the bank took over New York-headquartered M.Y. Safra Bank and completed the acquisition of FIS Privatbank in Luxembourg. BTG has also opened offices in Miami, Portugal, and Spain.

The bank’s focus lies firmly on the offshore business, where it expects to reach $30 billion in AUM by next year, according to Rogerio Pessoa, head of wealth management.

Bradesco Private, another local giant, has followed a similar path. Focusing on improving its offshore offering, the Brazilian bank has ramped up investments in Luxemburg and acquired BAC Bank in Miami, Florida, now rebranded Bradesco Bank.

Also placing offshore at the center of its growth strategy, BBVA Private in March opened a new advisory office in Miami, fully focused on Latin America. The Spanish powerhouse also disclosed plans to expand its private banking teams in Brazil and Chile, two countries where it lags behind the competition.

“Due to the higher degree of uncertainty of policy in Latin American economies, we find a strong preference for offshore assets,” says Citi’s Gonzales.

However, many clients still seek geographic protection without having to go offshore, notes Juliana Laham, chief investment officer at Bradesco Global Private Bank. “Offering global portfolios within local market investments has been a highly successful strategy,” she says. “In these cases, choosing between dollar-based strategies remains an interesting option.”

As Latin America grows into a key battleground for the ultrarich, the same cannot be said of the Caribbean. Due to tighter banking regulation in the US and in the region, several key players have found it challenging to keep their operations running.

The “de-risking” trend has led to the exodus of around 40% of corresponding banks from the region over the past 15 years, according to the Economist Intelligence Unit, reducing its access to global finance offerings.

“The island offshore market is getting increasingly fragmented globally as the US grows increasingly interested in closing financial loops,” Trout says. “That doesn’t bode well for the region, given that most of its AUM growth is not organic to the region as it is for LatAm wealth.”

One side effect of growing demand is that clients are resorting to more banks at the same time. A 2023 paper by the Capgemini Research Institute indicates that UHNWIs maintain relationships with seven wealth management firms on average, up from just three before the pandemic.

Against this backdrop, banks have been stepping up their game when it comes to customer retention.

“It’s not just a question of footprint and scale,” argues Alfonso Castillo, global head of Santander Private Banking. “The value proposition includes innovative global investment products and goes beyond private banking services such as banking for the clients’ companies, real estate advisory, and day-to-day banking.”

“Banks that don’t offer the necessary expertise around trust, philanthropy, and even around very specialized asset classes, such as alternatives, are under the threat of falling short,” Trout warns.

Against this backdrop, the industry is increasingly prioritizing services and comprehensive planning as central components of its offering, aiming to strengthen customer loyalty in the long run. 

However, Trout notes, figuring out the staffing model might pose the most significant challenge for banks looking to “support very specialized needs without being killed by the costs.”

The solution to that problem may be in technology, says Gonzalez: “Artificial intelligence can create models based on the client’s investment preferences and past behavior, then make recommendations and dynamically rebalance the portfolio based on new information or changing market conditions to correct any drifts from the core strategy. As a result, advisers can concentrate on the human-dependent aspects of client relationships: making big decisions, building trust, and understanding client needs and goals.”

Mexico’s President-elect Claudia Sheinbaum announced three new passenger train lines in July as one of her victory promises, highlighting a potential traffic jam for the country’s nearshoring boom and a larger regional need for infrastructure investment.

The following month, however, Morgan Stanley issued an “Underweight” warning on Mexican shares based on judicial reform plans announced by outgoing President Andrés Manuel López Obrador. Morgan Stanley warned, “These changes may also increase uncertainty about the capital expenditure outlook amid bottlenecks in nearshoring capacity.”

This cocktail of opportunity and hazard typifies Latin America’s decades-old struggle to get the development equation right, given lack of adequate roads, industrial and vehicular parking, and specialized infrastructure—and dubious governing practices.

The standard of infrastructure is not the only issue. Others include duplication of functions; virtually every country in Central America has an interoceanic rail plan to compete with the Panama Canal. But a lack of financing, a deficit of universal building codes, and issues with projects that are built over multiple municipalities, each having their own set of standards, conspire to keep them on the drafting table. At a granular level, a series of sinkholes in 2007, 2010 and 2023 in Guatemala City have been blamed on a lack of up-to-date mapping of the capital’s drainage system. Eminent domain laws may not exist or have been rarely used, leading to a lack of legal certainty.

“It’s clear there’s a big gap between what’s been identified as needed in the Latin American and Caribbean region—more than $2.2 trillion in water, sanitation, transport and telecom sectors, etc., each year”—and what’s available, says Miriam Figueroa, Latin America practice group regional co-leader for public-private partnerships (P3) & infrastructure at law firm DLA Piper. “That’s about 3.1% of GDP each year and that is not happening.”

There are signs of progress, however. In May, Chile announced $17 billion in public works concessions for the 2024-2028 period, representing 5.25% of its 2023 GDP. Peru plans 80 projects across transportation, ports, logistics, health-care and other social infrastructure. Ecuador has a secretariat for public-private partnerships and in July launched a P3 registry.

Accordingly, experts remain bullish on Latin America, but warn of micro and macro issues that remain outstanding.

Countries in the region are struggling to get up to speed. Literally.

“Logistical and transportation deficiencies cost Mexico about 169.3 billion pesos [about $8.8 billion] in 2023,” says Luis Mendez, president of Mexico’s Chamber of Construction Industry.

Railways are not the future in Central America, however, argues former Central American Bank for Economic Integration (CABEI) head Dante Mossi, due to the short-term nature of governments, delays in feasibility studies, and finance concerns.

“In the case of Costa Rica, the most advanced [in terms of rail feasibility studies],” Mossi says, “the new administration, even with charges of 0.28% per year for a 40-year term, does not want to carry out the investments, nor will they do so. There is no time left.”

Some multilaterals are now veering away from mixing funds with development banks and governments, Mossi notes, and are less likely to facilitate build-operate-transfers. Infrastructure projects make up around $15 billion in loans from the CABEI alone. Instead, Mossi expects that the next phase will be electric mobility via low-cost Chinese-made cars, buses, and heavy-transport trucks.

This fits a strong move toward sustainability and resilience. At the World Bank’s October 2023 annual meeting, bank chief Ajay Banga called for a review of the  annual $1.25 trillion spent by governments and multilaterals on agriculture, fuel, and fisheries subsidies. In January, at the World Economic Forum, he warned that governments and multilaterals do not have trillion of dollars to spend and that removing barriers to private-sector investment will be necessary to solve the world’s bigger development problems.

Caribbean leaders have recognized the need and joined in pleas for more access to finance, pledging to use artificial intelligence (AI) to curb corruption and acknowledging the need for resilient infrastructure. As if to underscore the point, July’s Hurricane Beryl caused an estimated $6.8 billion in damage; the Caribbean is expected to face up to a dozen more storms before this year’s season ends.

“The Caribbean experience should serve as a lesson to the rest of Latin America in terms of the consequences of not having infrastructure or planning in anticipation of disasters,” DLA Piper’s Figueroa says. From the incorporation of disaster risk management when projects are designed to establishing up-to-date local building codes, the maintenance factor is critical to keeping these countries prepared, she argues.

In the long run, it is also more cost-effective. “The cost of disaster and the collapse of infrastructure because of disasters is much more expensive,” she notes.

Following 2017’s Hurricane Maria, Puerto Rico Governor Ricardo Roselló estimated $90 billion in damage. Alongside Costa Rica and the Dominican Republic, Puerto Rico hopes to benefit from the nearshoring boom that has centralized around Mexico. As a US territory, it benefits from a sound legal framework and access to the emergency federal funds that restored the island’s power grid and critical infrastructure.

Over the past year, however, Figueroa says that increasing insurance costs prompted last-minute withdrawals by project bidders across the region. This has been most keenly felt in Florida and California but is spreading across the US and the Caribbean.

Besides disaster management, improved transport infrastructure is needed to make Latin America more competitive, enhance commerce and tourism, and eliminate long-standing intraregional delays. Speaking to Bloomberg online, then-CEO Guillermo “Willy” Castillo of Cerveceria CentroAmericana noted, “Guatemala has an advantage in terms of geographic operation, but the port system is weak. We must think of an integrated region. In Central America, there are specialized ports in El Salvador, Honduras, and the Panama Canal. But the problem we have as a region is interconnection, and moving around the region is complex.”

Corruption remains the headline-grabbing barrier to development.

“Corruption does more than anything else to destroy the very essential relationships in society that are needed to have peaceful, harmonious development,” John Githongo, CEO of Inuka Kenya Trust, said in a recent World Bank blog post. “It undermines the glue that holds a society together.” Central America loses up to $13 billion yearly via corruption, according to a 2019 Anti-Corruption Digest report.

This may be scaling upward, if a recent case in Guatemala is indicative. The tax authorities recently unveiled Caso B410, which alleges that at least 800 million Guatemalan quetzals ($102.6 million) of taxable income was lost to one individual who was the legal representative of 410 companies that appear to have not executed any public work and were essentially false fronts. The true cost to the Guatemalan state could be in the vicinity of 6.4 billion quetzals.

Despite the many barriers to development Latin America faces, the past 10 to 20 years in the Dominican Republic suggest a way forward, says Francisco Cerezo, chair of the US-Latin America practice at DLA Piper. Creating a sound legal framework has been critical to attracting foreign investment to the island nation, along with addressing multiple-jurisdiction, eminent-domain, and recordkeeping issues.

Digital infrastructure such as data centers, broadband access, and the energy to power them, offer opportunities going forward, he says, although creating it will require a significant investment on the part of governments, the private sector, and private equity.

To benefit, foreign investors must understand the region better and avoid same longtime blind spots. Necessary steps, Cerezo says, include “due diligence—well beyond the type you’d do in the US or Canada—really mapping out the outreach to local communities and stakeholders, and considering bringing a local partner into the management or equity structure.”

But with trillions of dollars needed to stem migration, improve commerce and connectivity, stimulate tourism, bridge the digital and interconnectivity divide, and provide the energy to power a potential nearshoring boom, Latin America and the Caribbean find themselves at a crossroads. Despite the hurdles, these challenges represent opportunity for worldwide investors looking to step in with the support of multinationals and national governments.

Global Finance: What is the Philippines economic growth outlook for 2024-25?

The outlook for domestic output growth over the medium term is largely intact. With 6.3% growth in the 2^nd quarter, it would likely settle within the government’s target in 2024 as a whole. We expect growth to be supported by robust construction spending and the timely implementation of various government programs.

GF: The Philippines Central Bank (BSP) was the first major central bank in Asia to cut rates following the widespread regional post Covid-19 monetary tightening. Is the bank comfortable acting ahead of the Fed?

Eli Remolona: The BSP takes a data-driven approach to policymaking. The cut in rates in August was driven by our projections of inflation and growth based on the latest data on domestic conditions. The timing of the FOMC’s actions did not play much of a role in our decision.

In fact, about two months before our latest policy rate cut, our forward guidance already indicated that we expected to shift to a less hawkish monetary stance. I also mentioned during an economic forum in early July that the BSP did not need to wait for the US Fed to cut rates before we do.   

The rate cut [in August] came amid a favorable inflation outlook. A key factor to this is the recent Executive Order lowering the tariff on rice imports. Rice is the staple in Filipino households, and so changes in rice prices have considerable impact on overall inflation. In addition, core inflation has continued to ease, with a September reading of 1.9%.

Our latest estimates show that even if some risks to inflation materialize, inflation will settle at 3.3 % this year, 2.9% next year, and 3.3% in 2026. These are all within the target range of 2-4%.

With inflation now on a target-consistent path, we have room for a calibrated shift to a less restrictive monetary policy stance.  

The reaction of financial markets to the BSP easing its policy rate earlier than the US Fed has been relatively muted, with the Philippine peso weakening only slightly versus the US dollar right after the recent policy decision and has since continued to appreciate.

GF: How has BSP’s prior policy-rate tightening impacted the Philippine’s key economic variables, and what direction are domestic interest rates headed?

Remolona: Previous policy rate increases had some dampening effect on demand, including credit activity. Nevertheless, the impact of tight financial conditions was something the domestic economy could absorb — as indicated by sustained GDP growth and improving employment conditions.   

On the domestic interest rate path, the current macroeconomic outlook, including target-consistent inflation, supports a calibrated shift to a less restrictive monetary policy stance. However, the BSP will continue to monitor lingering upside risks to prices, including those coming from higher electricity rates and external factors.

GF: What is the outlook for credit growth and credit quality in the Philippines over the next year?

Remolona: The country’s banking sector has been a reliable source of strength for the economy. Bank lending has consistently grown to support economic activities without compromising credit quality. We attribute this in part to prudent lending standards of banks.

Total loan portfolio of the country’s banking sector amounted to P14.2 trillion ($254 billion) as of end-July 2024, up by nearly 11% from a year ago. Of this loan portfolio, non-performing loans account for 3.58%, which is very manageable.

We expect the trend of robust loan growth and good credit quality to continue in the months ahead.

GF: How significant are ESG considerations and the net zero commitment to the BSP’s modus operandum over the medium term?

Remolona: The Philippines had committed to peak carbon emissions by 2030. At the same time, we recognize that climate change poses challenges to our mandates of promoting price and financial stability. This highlights the urgent need for central banks and supervisors to refine monetary and prudential tools to take account of ESG factors.

Firstly, monetary policy decisions will need to take increasing account of the physical risks of weather events. These threaten to present supply shocks that are more significant than the recent shocks in oil and food prices. In the case of the Philippines, these shocks led to an inflation rate of 8.7% in January 2023, the highest in 14 years. It is evident that we can no longer look through these shocks since they change inflation expectations and lead to significant second-round effects. 

Climate change also presents a major challenge to our mandate of promoting financial stability. We think climate risk is the ultimate systemic risk. While we have issued regulations that embed ESG considerations into bank’s risk management frameworks, we must enhance our surveillance tools further. 

We are collaborating with relevant government agencies and other stakeholders to leverage available data, models and expertise in order to strengthen our understanding of climate risk and its impact on the financial system. Our efforts to deepen the domestic capital market and provide alternative funding sources aim to channel funds toward eligible green or sustainable projects.  In addition, the BSP is pursuing an inclusive sustainability agenda. Our initiatives to increase capital flows and green finance to promote just transition and resilience building are also designed to benefit the most climate vulnerable segments, such as the agriculture sector, and small and medium enterprises. 

Moreover, the BSP is committed to incorporating sustainability in its own operations. As a signatory to the UN-supported Principles for Responsible Investments, we are dedicated to integrating ESG considerations into our investment practices.

Global Finance: What is your view of the Costa Rican economy in the coming 12 months?

Róger Madrigal López: Costa Rica’s economy is set to maintain its positive momentum in the coming months, with growth expected to hover around 4%. This growth trajectory builds on several favorable developments observed in recent years.

First, the country’s trade surplus has been improving significantly, reflecting a strong export sector. This trend is likely to continue, based on robust foreign direct investment [FDI] thanks to Costa Rica’s appeal as a destination for international capital, and complemented by the tourism sector returning to its pre-pandemic levels. Additionally, the services sector continues to gain prominence, evidencing the shift toward more service-oriented economic activities, which allows more economic diversification in products and markets.

However, there are some short-run challenges to address. Higher interest payments are putting pressure on fiscal resources, potentially limiting the government’s expenditure. This situation requires careful management to ensure that essential services and investments are not adversely affected.

Moreover, there are ongoing issues in the labor market, particularly with the integration of the female workforce. Addressing these issues through targeted policies will be crucial for fostering inclusive economic growth. Additionally, there are long-term challenges like improving human capital, enhancing infrastructure, and fostering competition.

In summary, while Costa Rica is on a positive path with continued growth and improving economic indicators, tackling the challenges related to fiscal constraints and employment will be key to ensuring a sustainable and equitable economic future.

GF: How important is it to institutionalize the central bank’s autonomy, as demanded by the International Monetary Fund?

Madrigal López: Institutionalizing the Central Bank of Costa Rica’s autonomy is crucial, which has been noted not only by the IMF but also by other international bodies, such as the Organization for Economic Co-operation and Development [OECD]. These organizations have consistently emphasized the importance of this measure for ensuring effective and independent monetary policy.

The empirical observation is that, in the long run, independent central banks are more successful in achieving price stability and autonomy.

There is a proposed legislative initiative that aims to address these recommendations by adding a final paragraph to Article 188 of the Costa Rican Constitution. This amendment would grant the BCCR administrative and governance autonomy, thereby safeguarding its essential functions. It ensures that the bank can set its own objectives and targets without undue external interference.

GF: What is your view on the economic outlook of the Central America region?

Madrigal López: The economic outlook for the Central America region is quite varied, as each country faces its own unique set of challenges. For instance, some countries share similar characteristics with Costa Rica, such as a shift toward a services-based economy and notable growth in recent years.

In contrast, other countries in the region are grappling with the need for greater economic integration and accelerated growth to enhance their average income levels. Notably, these other nations have benefited significantly from remittance flows, which play a crucial role in their economies. All our economies have also simultaneously faced the challenge of increasing their debt-to-GDP ratios following the pandemic shock.

Overall, there are opportunities for growth and improvement across the region. The path forward involves addressing these diverse challenges and leveraging the benefits of economic reforms. They also need to convince the rest of the world that they can become good commercial partners, which will inevitably benefit our integration as a larger market.

GF: What keeps you up at night?

Madrigal López: The Central Bank of Costa Rica remains committed to fulfilling its primary objective of maintaining price stability. Ensuring this stability is crucial for fostering a predictable economic environment and supporting sustainable growth. This sounds like a trivial concern for central banks, but for BCCR, to have low inflation is a relatively recent achievement that must be protected. To attain this objective, the autonomy of the BCCR’s governance must be effectively de jure and de facto guaranteed. This autonomy is needed to safeguard the bank’s ability to manage monetary policy independently and effectively. There is a concern regarding the risk to the BCCR’s management capabilities, particularly related to the availability of skilled technical personnel. Addressing this concern is important to uphold the bank’s operational efficiency and decision-making.   

Global Finance: Iraq went through decades of wars and crises. How did that impact the Iraqi banking sector?

Ali Muhsen al-Allaq: The banking sector faced severe headwinds starting with the Iraq-Iran war of 1980-1988, which damaged the country’s financial stability and the banks’ ability to service internal debt. With the 1990’s crisis and the Kuwait war, the dinar’s value then collapsed on the parallel market. That created a major challenge for banks in settling deposits and loans, ultimately undermining public confidence in the banking system.

More recently, the fall of the former regime coupled with terrorism, the war against the Islamic State, and ongoing security and political unrest directly impact banks’ ability to attract savings. In times of uncertainty, particularly during displacement in war-torn areas, individuals tend to hold onto cash.

On the other hand, Iraq’s isolation from the rest of the world, starting in the 1990s, resulted in a large technological gap. This is particularly true of state-owned banks, which inherited problems from previous decades. They find themselves unable to keep up with the recent challenge of building a solid private sector to help diversify the economy.

GF: What is the top priority for the Central Bank of Iraq currently?

Al-Allaq: Our primary objective is to maintain price stability while also promoting sustainable development. The CBI is continuously trying to balance its economic responsibilities in light of the inflationary waves currently impacting the global economy, which have a severe impact on the cost of living for low- and middle-income households. Given Iraq’s reliance on imports, the CBI works hard to stabilize prices by controlling liquidity levels. The central bank also supports economic growth by financing projects that stimulate local production and reduce imports. Finally, the CBI also drives banking sector reform and promotes financial inclusion through electronic payments to deepen the overall level of banking services in Iraq.

GF: What are the main challenges facing the central bank?

Al-Allaq: Iraq’s delay in keeping pace with technology, due to prolonged security and political crises, has made banking sector reform a top priority for us. Because reform takes time, we have set the stability of exchange rates as a first, and very challenging, intermediate goal. The ongoing crises have eroded public confidence in the banking sector, reducing the impact of action on interest rates on the real economy—a crucial tool for all central banks, especially during inflationary periods.

Additionally, the low level of financial depth, the prevalence of an unregulated small and midsize enterprise [SME] network and the heavy reliance on the oil sector exacerbate structural imbalances. That makes our country vulnerable to external shocks, leading to increased budget deficits and rising internal public debt, all of which further weaken the impact of monetary policies on the real economy.

GF: The Iraqi banking sector is under international scrutiny, with concerns that some countries sanctioned by the United States access US dollars through Iraq. How do you combat fraud and money laundering?

Al-Allaq: The central bank is striving to strengthen Iraqi lenders through various measures including intensified controls, procedures and inspections targeting banking and non-banking financial institutions, and the establishment of an AML/CFT and a compliance office in Baghdad. To ensure a high level of compliance with global regulatory standards, we also contract with specialized international companies to pre-audit foreign transfers, restrict the delivery of US dollars to travelers at Iraqi airports and conduct enhanced internal processes regarding all transactions in foreign currencies.

GF: How can the Central Bank of Iraq help diversify Iraq’s economy?

Al-Allaq: One of our primary goals is to promote sustainable development by supporting bank liquidity and directing it toward private sector projects. In 2015, the CBI launched two key initiatives: the One Trillion Initiative to finance small and midsize enterprises through commercial banks, and the Five Trillion Initiative to fund large projects via specialized banks. These efforts have expanded to include a one trillion dinar [$770 million] initiative for renewable energy, aimed at addressing our country’s electricity challenges and climate concerns.

These initiatives are designed to develop the non-oil sector and drive economic diversification. As a result, non-oil GDP grew by 4.4%, reaching 87.7 trillion dinars in 2023, driven by growth in manufacturing, construction, trade and services. Additionally, the central bank’s National Strategy for Bank Lending has further supported economic diversification by organizing funding for private sector projects.