Draft:Powershoring

Powershoring is an emerging concept that refers to the decentralization of the production of energy-intensive goods to locations that offer clean, secure, cheap, and abundant energy and are situated close to consumer markets. This strategy aims to meet contemporary demands for sustainability, competitiveness, energy security, and economic efficiency. It is a corporate strategy, rather than a political one like nearshoring, friendshoring, or reshoring. Powershoring is primarily designed to serve international markets, which is why the strategy benefits from infrastructures such as ports and nearby industrial areas, as well as the wide availability of renewable energy in those locations.

The term and concept were originally introduced in 2022 by Jorge Arbache, currently a professor of economics at the University of Brasília, in a series of articles in Portuguese published in his column in the Brazilian business newspaper Valor Econômico, and in English and Spanish, in reports and on the blog of the Development Bank of Latin America and the Caribbean – CAF, when he was vice president of that multilateral development bank.

Historically, the globalization of production was driven by the search for cheap labor, leading to industrial concentration in Asian countries. However, factors such as the environmental agenda, extreme climate events, geopolitical tensions, and energy price volatility have brought geographic diversification of investments to the forefront, leading major companies to reconsider and to review their production and supply chains.

Countries that combine clean, secure, and abundant electricity grids, attractive energy and labor costs, and are distanced from geopolitical tensions stand to benefit. This is the case for Latin America and the Caribbean (LAC). Many countries in the region already have predominantly renewable energy matrices and are away from complex geopolitical issues while being geographically close to North America and Europe.

Adopting powershoring can bring mutual benefits. For developed countries, it represents an opportunity to increase the competitiveness of their companies and reduce CO₂ emissions without compromising economic growth, while mitigating risks associated with geopolitical instability and dependence on fossil fuels. For LAC and other regions with similar conditions, it can mean a boost to industrialization, participation in global value chains, job creation, increased productivity, and regional economic integration.

Who Are the Biggest Beneficiaries of Powershoring?

Powershoring benefits countries and regions that meet specific sustainability policies, clean energy availability, and geographic proximity requirements for major consumer markets. These beneficiaries can be categorized into the following groups: Countries with Clean and Abundant Electricity Grids

Countries with significant renewable energy generation capacity—such as solar, wind, hydro, biomass, biogas, and geothermal—are among the biggest potential beneficiaries. These locations offer competitive advantages in terms of energy availability and costs while contributing to global decarbonization goals.

• Examples: Brazil, Uruguay, Paraguay, Costa Rica, Norway, Iceland, and Canada.

Regions Close to Major Consumer Markets Geographies with abundant and competitive renewable energy that are strategically located near major markets like North America, Europe, and Asia can also benefit. Proximity reduces logistics and environmental costs, shortens transportation times, and fosters greater interaction with consumer markets.

• Example: LAC.

Emerging Economies

Developing countries with relatively low labor costs, ample availability of competitive renewable energy, and tax incentives to attract foreign direct investment also stand out as potential beneficiaries.

• Examples: Brazil, Colombia, Peru, and Chile

Multinational Companies Companies that adopt powershoring as part of their strategy to meet sustainability goals and regulatory requirements can benefit. This strategy allows corporations to reduce energy costs, secure access to energy and markets, minimize supply chain risks, diversify their value chains, comply with stricter environmental standards, accelerate the production of green goods and services, and address new consumers´ demands.

Due to emerging risks, companies are no longer focusing solely on cost optimization but also on the resilience of their value chains. This shift in focus represents a strong value proposition for emerging countries that meet the characteristics mentioned above.

• Examples of sectors: Multinational companies from energy-intensive industries such as steel, aluminum, glass, fertilizers, metallurgy, ceramics, cement, paper, low carbon fuels, automotive, and chemicals.