The fragility of supply chains revealed by the COVID-19 pandemic led to the emergence of “onshoring”, “nearshoring” and “friendshoring” as buzzwords in Washington. Greenshoring furthers the ambition of those strategies – to shift manufacturing closer to home – to countries that can provide greener supply chains. The US and its allies are seeking to reduce dependence on authoritarian regimes for commodities and goods to enhance national and trade security. Greenshoring can circumvent energy-intensive long-distance transport, and employ less carbon intensive factory processes. The linkage of security and climate interests provides an important opportunity to make supply chains more resilient and more transparent by bringing them closer to home, or to countries with a shared commitment to tackling climate change.
Latin America and the Caribbean (LAC) countries share a unique set of factors that position the region at the core of global greenshoring efforts: home to considerable critical mineral reserves; more than 40% of the world’s biodiversity; an electricity mix that is already 50% renewable on average (vulnerability to climactic change has translated to appetite for change); top 50 in global skills talent ranking countries; and broad geopolitical neutrality and stability, LAC can provide reliable supply chains in an increasingly complex world. Although not without risk (notably internal political instability and organised crime) the centrality of the region to this global trend is already evident – Mexico replaced China as the US’ top trading partner earlier this year, and the Belt and Road Initiative is expanding across the region at pace.
Case Study: The Dominican Republic
The Dominican Republic led the region in growth in 2022 and is projected to do so again in 2023. Its ambition to become a regional logistics hub is an opportunity for foreign investors and the Dominican government develop a greenshoring powerhouse. The current government is seeking to modify the electricity matrix to harness the wind and solar power opportunities in DR and is incentivising foreign manufacturers to do the same. A key industry in the DR is medical device manufacturing – if the DR attracts investment into its green energy (renewable energy’s share of power generation in the DR has more than tripled in the past 6 years) then it could be a key destination for the manufacturing of green medtech. With trade agreements with the US, EU and UK – the DR is ripe with opportunity.
Case Study: Costa Rica
As a friendshoring and environmental trailblazer, Costa Rica is the world’s top foreign direct investment performer relative to the size of its economy. Cloud computing companies in the country are reducing server emissions by using the air, wind, water, sun and geothermal sources that power 99% of Costa Rica’s electricity grid. Not only can Costa Rica behave as a green transition example for the rest of the world, it could also prove to be central to solving the world semiconductor supply chain issues. Intel (the second largest supplier of semiconductors) and the US government have both made investments in the country related to manufacturing of the chips. This is a step in taking advantage of existing talent and production within Costa Rica’s high values electronics sector. Given manufacturing semiconductors is so energy and resource intensive, there is a clear synergy of climate and industrial strategies for the US and beyond.
Greenshoring in the UK
Post Brexit, Britain is shifting production closer to home – with 40% of 132 companies surveyed in 2022 increasing their British supply base. As corporate social responsibility grows in importance, shortening supply chains could be a key area for reducing emissions. Britain itself may be a key destination for low carbon manufacturing in Europe, if it achieves its net zero objectives. Greenshoring could be a much needed boost to UK productivity and competitiveness.
However, as made clear by the Biden administration, onshoring isn’t a feasible standalone strategy, nor always the greenest. And as Global Britain looks to expand its ties across the world whilst simultaneously meeting its net zero targets (despite efforts to limit ambition of late), building a network of greenshoring allies should be a key strategic aim. The UK has nearshoring opportunities in Eastern European countries – particularly in IT. In the very long-term, strong Ukraine-UK relations could leverage the breadth of Ukraine’s technology talent. Looking further afield to the LAC region, the UK can play a leading role in international collaboration on sustainable business practices, exchanging knowledge with partners who share similar values on responsible business conduct.
The potential in this domain is promising for the UK and its allies, presenting an opportunity to align the green transition with national security interests in a business-oriented approach.