Text originally published on Bloomberg
Written by Cristiane Lucchesi
(Bloomberg) — With demand growing globally for data centers for artificial intelligence and cloud computing, infrastructure investors are betting on Latin America as an opportunity, pointing to its renewable energy resources and government incentives.
In addition to data projects, investors are also being attracted to some of the biggest privatization programs in the world in sectors such as sanitation and roads as governments in the region try to close the gap between massive infrastructure needs and their scarce financial resources.
At $11.7 billion, such investments in the first three quarters of last year more than doubled the total for all of 2023, including debt and equity, according to Lavca, the private equity association for the region. And more is coming.
“We are excited about Brazil, Mexico and Latin America as investment destinations because we see great opportunities in sectors such as transportation, power and data infrastructure,” said Tim Formuziewich, who heads the region at private equity firm I Squared Capital, a global infrastructure investment manager. “One of the challenges of Latin America relative to Asia is that you must remain focused to find the pockets of meaningful growth.”
The data investments in Latin America aren’t just to meet regional demand, but also to export capacity, according to Andre Sales, infrastructure chief executive officer at Patria Investments Ltd.
“For cloud computing, you need data center proximity, but that’s not the case for AI,” said Sales, whose firm has $5.7 billion in infrastructure assets under management out of a total $44.7 billion. He said Latin America is responsible for 7% of global data traffic and has about 2% of the capacity.
Patria was a pioneer in data infrastructure investments in the region, having founded in 2015 Odata, which operates a network of data centers. The company was acquired by the US-based firm Aligned Data Centers in a deal completed in 2023.
The Trump administration is also trying to gain support for addressing the need for more data centers, toning down the emphasis on determining whether the energy sources being used are good or bad for the environment.
On Tuesday, Trump announced a joint venture led by SoftBank Group Corp, OpenAI and Oracle Corp that will fund AI infrastructure. The president was joined by Softbank’s Masayoshi Son and tech executives including Sam Altman and Larry Ellison. The venture will deploy $100 billion “immediately,” Son said, with the goal of increasing to “at least” $500 billion the number of AI projects, including data centers and physical campuses.
Among I Squared’s acquisitions was the 2021 deal for Kio Networks, Mexico’s largest data-center operator and digital-infrastructure service provider. It also owns data centers in Guatemala, Panama, the Dominican Republic and Colombia. Its investments in Latin America include a port and a pipeline in Colombia and a power company in Peru called Inkia Energy.
AI’s voracious appetite for energy is another factor to stimulate private equity investments in power generation and transmission in Latin America. On average, a ChatGPT query consumes almost 10 times as much electricity to process as a Google search, Goldman Sachs Group Inc. said in a report last year.
The region’s low production costs are also an advantage, Sales said.
“Any company that is preoccupied with reducing its carbon footprint would benefit from investments in Latin America, where there is plenty of clean energy available,” said Erickson Araujo Santana Oliveira, a partner at law firm Levy & Salomao Advogados.
And recent reforms in Brazil will reduce the tax burden to import graphics-processing units, the electronic circuit that performs mathematical calculations at speeds needed for AI, to 14% in 2033 from 48% now, Levy & Salomao has calculated.
“You can look at Brazil and you can see over time they’ve implemented a pension reform, a water reform, a reform in rail, and are in the process of a tax reform,” Formuziewich said. “The institutions in Brazil are strong and therefore capable of reform, and we expect that progress to continue in this administration and into the next.”
The data-center market in Latin America is expected to double, from roughly $5 billion to $6 billion in 2023 to as much as $10 billion by 2029, said lawyers from White & Case LLP in a report last year. “Data localization rules and ‘near shoring’ to the US economy has spawned near exponential growth in their construction in Mexico and other ‘trusted’ Latin American countries,” White & Case said.
Microsoft Corp, Amazon.com Inc, Alphabet Inc, Meta Platforms Inc, Oracle Corp, Huawei Technologies and Tencent Holdings Ltd. are expanding their data centers in the region, and last year announced new investments of more than $9 billion, according to data compiled by Bloomberg. Those giants also lease capacity from third-party firms.
Infrastructure bonds issued in local Brazil markets soared to 120.3 billion reais ($20.4 billion) last year through November, 77% more than the full-year total for 2023, Anbima, the nation’s capital markets association, said.
“Last year was very dynamic, and the drivers included data infrastructure, renewable energy such as solar plants and wind farms, along with transmission lines, toll roads, logistics and ports,” Emanuel Hernandez, head of research for Lavca, said in an interview.
Miami-based I Squared, which has about $3.5 billion invested in Latin America of its $40 billion in total assets under management, made its first investment in Brazil in 2024, when it acquired a 49% stake in renewable-energy company Origo Energy for about $275 million. Founded in 2012 by former Morgan Stanley executives, I Squared has 300 employees, with 13 serving Latin America. It opened an office in Brazil in December 2023.
Other private equity funds investing in data centers in Latin America include Actis LLP, bought by General Atlantic LP in October in a deal that created a fund with almost $100 billion under management. Actis in 2023 acquired full ownership of 11 data centers across six countries in Latin America.
Beyond data centers, roads and sanitation concessions are also attractive for global private equity investors, Sales said.
In Brazil and Colombia, about 7,000 kilometers (4,350 miles) of roads will be auctioned in the next 12 months, Sales said, adding that Brazil needs $120 billion in water and sewage investments to bring those services to all its residents. Oliveira, from Levy & Salomao Advogados, said he expects toll-road concessions to unlock 120 billion reais in investments in Brazil.
“Brazil is the food basket of the world, while Chile, Peru and Colombia are mineral providers to the world as well,” Formuziewich said, adding that his firm favors trade corridors — roads to export locations and ports. “We like aviation and the different ways of playing the near shoring thesis in Mexico. We also like the water sector in Brazil.”
