The economic cost of insecurity: Can overcoming instability drive opportunity in Latin America?

The scale of the problem is stark, especially in Latin America and the Caribbean. Although the region is home to just 8% of the world’s population, it accounts for roughly one-third of global homicides. According to the International Monetary Fund (IMF), the average homicide rate in the region is 10 times that of other emerging markets and developing economies, and twice as high as sub-Saharan Africa. Nearly 50% of all homicides in the Americas are linked to organized crime, compared to 24% globally, highlighting that much of the region’s violence is economically and criminally driven, not simply interpersonal².

From political to criminal violence

The roots of insecurity in Latin America are deeply intertwined with its uneven political, social, and economic history. Periods of coups, insurgencies, and state repression throughout the 20th century left enduring institutional weaknesses. Deep social inequality, limited state presence in rural areas, and the persistence of informal and exclusionary economic structures created fertile ground for both political violence and organized crime to thrive.

Several insurgent movements that were ideologically driven during the Cold War later shifted to drug trafficking, extortion, and smuggling, blurring the line between political insurgency and criminal enterprise. Studies of Latin American development have long linked these dynamics to older patterns of inequality and fragile governance rooted in the region’s colonial legacy. Weak rule of law, impunity, and the coexistence of wealth and marginalization have enabled violent actors to capture parts of the state, turning insecurity into a self-reinforcing equilibrium that shapes political stability and economic incentives.

By the 1990s and 2000s, transnational criminal networks had become dominant drivers of lethal violence. Colombia set the grim benchmark: at its peak in the early 1990s, the homicide rate reached roughly 75 per 100,000 people, fueled by cartel wars and insurgency. Three decades later, after peace accords and policing reforms, the rate had fallen to about 25 per 100,000 (2024),^{3, 4} one of the sharpest security improvements in the region.

Mexico, by contrast, saw the opposite trend. The state’s 2006 “war on drugs” fragmented major cartels, igniting turf wars, extortion, and large-scale cargo theft. Homicides rose from 8 per 100,000 people in 2007 to nearly 29 by 2018 and remained near 19.3 in 2024, with 11 Mexican cities ranking among the world’s 50 most violent in 2023.⁵ These dynamics reshaped regional trafficking and logistics routes, as cartel fragmentation in Mexico pushed parts of the cocaine, arms, and smuggling trade southward through Central America’s weaker transit corridors, where state control was limited. This imposed significant costs on firms through higher security spending.

Central America shows that violent cycles can be reversed. A decade ago, San Pedro Sula (Honduras) was the world’s most violent city, with 142 murders per 100,000 people in 2014. By 2023, combined crackdowns and community programs had reduced that rate below 26. El Salvador’s transformation has been even more dramatic: once synonymous with gang warfare, it recorded only 114 homicides in 2024, a rate of 1.9 per 100,000 people⁶, the lowest in the hemisphere. The decline came at a high institutional cost under extended emergency powers. The government’s state of exception, first declared in March 2022 after a surge in gang killings and renewed through 2024, granted authorities broad powers to suspend civil liberties and detain suspects without warrants or timely judicial review. This enabled a massive anti-gang crackdown, with over 78,000 arrests by mid-2024, but also weakened due-process protections, militarized policing, and led to reports of arbitrary detentions and overcrowded prisons. While citizens are safer, concerns over democratic checks and balances have heightened.

Brazil, meanwhile, has quietly lowered its national homicide rate from above 30 per 100,000 people in 2017 to around 21 in 2024⁷, its lowest in a decade. Nonetheless, Amazonian and frontier regions remain flashpoints, and 13 Brazilian cities still rank among the world’s 50 most violent cities, out of which 5 are in the top 30.

Other countries have moved sharply in the opposite direction. Venezuela’s violence peaked amid institutional collapse, with around a dozen cities on the world’s 50 deadliest list in 2016, though by 2023 only Caracas remained. Ecuador, once one of South America’s safest countries, saw homicides soar from 5.7 per 100,000 people in 2018 to around 38.8 in 2024⁸ as gangs fought over new trafficking corridors, culminating in prison massacres and a live-broadcast hostage siege.

On the flipside, several South American nations have maintained relatively low levels of lethal violence, standing out as regional exceptions. Chile, Uruguay, Argentina, Paraguay, and Peru consistently reported 2023 homicide rates in the single digits, well below the regional average and far beneath the levels seen in Mexico, Brazil, or Central America. Their relative stability reflects a distinct historical and institutional trajectory: these states experienced fewer protracted insurgencies, lie outside the main northbound drug-trafficking corridors, and have developed more professional police and judicial systems since their democratic transitions. Uruguay’s strong rule of law and welfare model have reinforced social cohesion, while Chile and Argentina benefit from diversified economies and cohesive middle classes that limit the social space for organized crime. Peru, though grappling with illegal mining and coca cultivation in remote areas, has largely avoided large-scale cartel fragmentation. Together, these examples illustrate that Latin America’s insecurity is not monolithic: countries with stronger institutions, lower corruption, and peripheral exposure to transnational trafficking networks have so far contained violence more effectively and preserved a more stable environment for investment and governance.

The rise of cyber-enabled crime

At the same time, the rise of cyber-enabled crime has added an invisible layer to the region’s security challenge. Latin America has become one of the fastest-growing targets for ransomware and financial fraud, with a 25% average annual growth rate in only the last decade⁹, with organized groups using cryptocurrencies to launder proceeds. For example, Mexican cartels have been linked to illicit Bitcoin flows, and, according to the Associated Press, in 2024 a gang built its own internet-antenna network in Michoacán to extort residents into paying for Wi-Fi under threat of death. One of the most striking things? Brazil gets as many extortion and ransomware incidents as the next 5 most frequent Latin American countries combined (Mexico, Argentina, Peru, Colombia, and Chile).

No country is fully insulated. Violence in Latin America remains fluid and adaptive, moving with drug markets, technology, and opportunity. The transformation from ideological insurgency to organized crime, and now to cyber-criminal networks, underscores a single truth: insecurity in the region is not episodic but structural, continuously eroding investment, productivity, and long-term growth potential.

The economic cost of insecurity

The costs of insecurity in Latin America extend far beyond its social toll, translating into both direct and indirect economic losses. The direct costs include theft, extortion, lost shipments, ransom payments, and higher insurance premiums, while the indirect costs-lower investment, weaker productivity, costlier supply chains, and higher borrowing costs-are even larger.

According to the Inter-American Development Bank (IDB), crime and violence cost Latin America and the Caribbean about 3.44% of GDP, equivalent to 80% of the region’s public education budgets, 2 times its social assistance spending, and 12 times the combined R&D budgets of these countries. Nearly 47% of this cost comes from private firms’ spending on security and mitigation¹⁰, as companies routinely pay protection fees, absorb losses from theft, and maintain costly surveillance and insurance systems. These burdens compress profit margins, discourage investment, and in many cases, drive firms to pass higher costs to consumers or delay expansion plans or even exit high risk market altogether.

Unlike regions where military expenditure accounts for the majority of violence-related costs, South America’s burden is driven primarily by violent crime, homicide, and the need for internal and private security. In fact, nearly half of the region’s economic impact from violence comes from these categories, with military spending representing a much smaller share.

For firms operating in high-risk environments, insecurity translates directly into financial losses and distorted investment choices. Beyond physical violence, cybercrime, fraud, and regulatory compliance have become major components of corporate security budgets. According to the World Bank, the average cost of cyberattack in Latin America reached roughly $3.69 million in 2023, an increase of one-third, from $2.8 million in 2017.

According to the International Economic Association (IEA), Crime imposes a significant economic burden on the region, affecting multiple sectors and aspects of society. Businesses are forced to allocate a substantial portion of their resources—about 1.6% of GDP—to security, which acts as a deterrent to entrepreneurship and innovation. The direct and indirect costs of law enforcement, including police operations, judicial systems, and prison facilities, amount to 1.08% of GDP. These expenses are not limited to infrastructure; the long-term impact of incarceration also results in diminished productivity that can persist across generations. Homicides alone are responsible for a 0.45% reduction in GDP, with the Caribbean facing the highest losses at 0.71%. The financial strain extends to government budgets, as almost 1.9% of GDP is funneled into policing and justice—nearly twice the share seen in similar economies. This heavy investment in crime prevention and response often comes at the expense of critical areas like education and infrastructure.

The broader consequences of high crime rates are far-reaching. Foreign investors, especially those in essential industries such as agriculture and finance, are discouraged from entering the market. Additionally, increased crime leads to higher rates of women leaving the workforce, which deepens existing gender inequalities. Ultimately, the true economic and social costs of crime go well beyond the visible numbers, undermining both fiscal stability and long-term development prospects for the region.

Educational outcomes suffer as schools in high-crime areas struggle to maintain attendance and provide quality instruction. Trust – the invisible infrastructure of a functioning economy – erodes, not only in institutions but between citizens. Even the environment pays a price, with the exploitation of natural resources and the degradation of ecosystems by criminal organizations going unchecked.

IDB estimates that loss of human capital from premature deaths, injuries, and incarceration accounts for about 22% of the total economic cost of crime in Latin America and the Caribbean. Across the region, financial institutions spent roughly US $15 billion in 2023 on compliance and anti-money-laundering systems to mitigate financial-crime risks.¹¹ These business-level losses translate into reduced CAPEX and slower formal sector job creation. Crime suppresses investment demand, as both domestic entrepreneurs and foreign investors avoid volatile markets.

Econometric evidence ties spikes in violence to capital flights and stalled projects. For example, IMF research finds that a recession in Latin America and the Caribbean tends to trigger a 6% jump in homicides the following year, and surges inflation above 10% can raise violence by about 10%. Conversely, stable policies and social programs help prevent crime. Sound economic policy, low inflation, social safety nets, jobs, and education can play a preventive role against rising violence.

Every homicide or disabling injury removes productive labor and entrepreneurial talent, while fear and migration deplete the skilled workforce. Beyond these, insecurity in the region has accelerated the “talent flight”, with many countries recording high scores on HFBDI index in 2024, signaling persistent emigration of skilled workers and entrepreneurs. This erosion of human capital reduces innovation, capacity weakens the formal sector, and increases dependency on lower-value economic activity, reinforcing the very conditions that allow organized crime to thrive.

Macroeconomic data confirm the drag. The IMF found that in Latin America, a 30% increase in homicide rates (equivalent to a historical 1 standard deviation) is estimated to reduce growth by 0.14 percentage points. A 10% increase in homicides lowers local economic activity by around 4%, and even perceptions of crime matter: a 10% rise in the share of crime-related news is linked to a 2.5% contraction in industrial production. Closing the gap between Latin America’s violence levels and the global average could therefore lift growth by up to 0.5 percentage points per year.^12, 13

According to Institute for Economics & Peace (IEP), the cost of violence in Mexico is substantial, with the economic impact of violence reaching 4.5 trillion pesos (approximately US$225 billion) in 2024, which is equivalent to about 18% of Mexico's GDP.¹⁴ In Brazil, it is estimated around US$474 billion in 2023, which equates to 11.08% of its GDP.¹⁵ Chile is losing an average of 2.6% of its GDP, about $8.2 billion a year, due to rising crime according to a study released by CLAPES UC¹⁶, driven by earlier business closures and reduced consumer activity. These estimates capture the full economic footprint of insecurity, including lost productivity, fear-related welfare losses, and the opportunity cost of public and private security spending.

Persistent insecurity can also weigh on investor confidence and indirectly raise borrowing costs by worsening perceptions of institutional strength and political stability. While sovereign risk spreads in Latin America are shaped primarily by fiscal fundamentals, external financing conditions, and policy credibility, episodes of violence and governance breakdowns can amplify those risks. Capital Economics (2024) estimates that current crime levels shave off around 0.25 percentage points from regional GDP growth each year.

Insecurity is not a social externality that can be ignored; it is a systematic risk factor that elevates expected costs and compresses rates of return. This means higher insurance and security budgets, rerouted supply chains, lower capital deepening in affected areas, and ultimately a persistent gap between observed GDP and potential GDP in many countries of the region.

What's changing?

As detailed above, several countries in Latin America have achieved notable reductions in homicide rates over the past decade, though progress remains uneven, and some nations continue to face rising violence despite emergency measures. This mixed picture highlights the importance of pairing enforcement with institutional reforms and sustained social investments to ensure sustainable security gains.

Policymakers and firms are not standing still, and the region’s responses show how risks can be mitigated and, in some areas, converted into opportunities for institutional strengthening and economic upgrading.

Governments are tightening regulatory frameworks particularly in anti-money-laundering, asset-forfeiture, and supply-chain-formalization laws, while expanding targeted social programs and community policing to re-establish state presence in fragile territories. Public–private partnerships are growing to improve logistics, digital surveillance, and service delivery, supported by IDB and IFC platforms that finance secure transport corridors and critical infrastructure.

To improve regional cooperation, the IDB teamed up with 18 countries to launch the Alliance for Security, Justice, and Development. The alliance will enable governments to develop evidence-based anti-crime policies and coordinate their implementation. The World Bank, Interpol, and the Organization of American States (OAS) are among the 11 organizations that joined the initiative.

El Salvador’s steep drop in homicides is a controversial but telling example that decisive enforcement can deliver rapid crime reduction; the IDB, IMF, and World Bank are now urging governments to pair such security gains with stronger institutions and social investments to make them sustainable.

On the corporate side, new markets are emerging around compliance, secure logistics, digital payments, cybersecurity, and operational resilience. This is giving rise to a regional market for secure logistics, including tamper-resistant warehousing and route-risk analytics. Recent estimates suggest that the supply-chain security segment alone generated approximately US$267 million in revenues in Latin America in 2023 and is projected to grow at around 12% annually through 2030¹⁷, reflecting strong demand from exporters, logistics operators, and manufacturers seeking to reduce theft, hijacking, and extortion risks.

Similarly, the Latin American RegTech market, valued at roughly US $1.2 billion in 2024, is projected to exceed US $3 billion by 2029, reflecting rising demand for tools that reduce AML, KYC, and fraud risks.¹⁸ Security-services and risk-management providers are expanding across the region, while fintech and digital-payment adoption transaction volumes have more than doubled since 2019, helping reduce cash-based extortion and broaden financial inclusion. Companies are also redesigning supply chains for resilience through near-shoring, investing in digital-identity systems, and developing local suppliers to reduce exposure to informal networks. These adaptations not only mitigate operational risk but also position early movers to benefit as governance strengthens and risk premia compress. The Latin American cybersecurity market is projected to grow at nearly 14% annually through 2030, as leading cybersecurity firms are beginning to scale their presence across Latin America.

Beyond insecurity: Latin America’s strategic rise

The region is entering a window where improving macro stability, global supply-chain realignment and lower crime could converge. Inflows of Foreign Direct Investment (FDI) in Latin America and the Caribbean totaled $188.962 billion dollars in 2024, up 7.1% from 2023 ¹⁹, while the IDB estimates near-shoring could add up to US $78 billion in additional exports of goods and services in the near and medium term.²⁰ Inflation is easing, fiscal deficits are narrowing, and digital- and green-investment pipelines are expanding. If policymakers convert emerging security gains into credible institutions and firms continue embedding governance, technology, and human-capital development into strategy, Latin America can shift from bearing the cost of insecurity to capturing the dividend of reform.

Latin America is not a peripheral player in the global economy-it is central to it. The region is one of the key exporters of food, energy, and critical minerals, with unmatched biodiversity and clean-power potential. As global supply chains rewire and firms seek secure, cost-efficient, and geopolitically aligned production hubs, Latin America is positioned not for slow convergence, but for strategic ascent.

The story is no longer only about the cost of insecurity, but about the value of stability. The convergence of improving security, digital transformation, and near-shoring momentum gives Latin America a credible path to become one of the primary beneficiaries of the current global economic realignment-not despite its challenges, but because it is addressing them. In a world seeking resilience, diversification, and resource security, Latin America is not on the margins of the global juncture. It is one of its strategic frontiers.