FDI in LATAM remains low

According to a report released on Tuesday in Santiago by the Economic Commission for Latin America and the Caribbean, Foreign Direct Investments (FDI) in Latin America are still below the levels seen before the COVID-19 epidemic, despite a growth of 40.7% from 2021. (ECLAC).

”This weak recovery shows how difficult it is for the region as a whole to reposition itself as an attractive destination for the establishment of new operations of transnational companies, after the end of the boom cycle of the price of raw materials and (of) high growth rates,“ ECLAC’s report stated.

The region saw a decline in the amount of investments coming from abroad, accounting for just 9% of the total, “one of the lowest percentages in the last ten years and much below the 14% recorded in 2013 and 2014,” according to the report. The projections are not at all positive. In 2021, the region received FDI worth US$ 142.794 billion, a 40.7% increase over 2020. These figures are still 9.55 percent less than the US$ 157.689 billion for 2019 nevertheless.

One of the lowest percentages in the last ten years and much below the 14% saw in 2013 and 2014, Latin America and the Caribbean as a whole only contributed 9% of all global FDI. The ECLAC document quoted in its conclusions stated that although though 2021 is regarded as a year of recovery, the trend of practically uninterrupted decline identified in Latin America and the Caribbean since 2012 is unchanged. Given the worldwide projection for 2022, it is conceivable that this slide will continue.

Foreign direct investment is crucial for the development of an effective strategy in a region with low levels of overall investment.

The nations that received the greatest FDI in 2021 were Brazil (33%), Mexico (23%), Chile (11%), Colombia (7%), Peru (5%), and Argentina (5%). According to ECLAC, the strong rise of FDI in Chile (66%) and Peru (919%) in South America, Guatemala (273%) and Panama (163%) in Central America, and Brazil, which always has a high incidence due to the size of its economy, accounted for the majority of the variance year over year.

With 36% and 34% of the total investments, respectively, the European Union and the United States were the major sources of capital. The number of mergers and acquisitions climbed by 33% during this time, yet it still represents “one of the lowest levels of the decade.”

“In a global context in which mergers and acquisitions grew very significantly, in the region they only recovered from the fall that occurred in 2020,” ECLAC noted.

The industries of electricity, gas, water, telecommunications, and oil refining are of significant interest to foreign investors. For the second year in a row, Costa Rica led Central America in receiving foreign aid; in the Caribbean, Guyana, the region’s oil powerhouse, overtook the Dominican Republic, which had held the top spot in previous years. The “large-scale acquisition” of a telecommunications company by Guatemala was also emphasised.

“To achieve a positive impact of Foreign Direct Investment, it is necessary to articulate productive development policies with the attraction of high productivity investments, in activities that support virtuous development processes in terms of inclusiveness, employment quality, environmental sustainability, innovation, and technological complexity,” Salazar-Xirinachs also said.