Latin America and the Caribbean continues to lose attractiveness for foreign direct investment

In a context of weak economic recovery, Latin America and the Caribbean received 142,794 million dollars of foreign direct investment (FDI) in 2021, 40.7% more than in 2020, but this growth was not enough to reach the levels prior to the pandemic, reported today the Economic Commission for Latin America and the Caribbean (ECLAC).

In his latest report, Foreign Direct Investment in Latin America and the Caribbean 2022the Commission points out that, globally, the amounts of foreign investment increased by 64% in 2021, reaching approximately 1.6 trillion dollars.

However, Latin America and the Caribbean lost share as a destination for global investmentrepresenting 9% of the total, one of the lowest percentages in the last ten years and far from the 14% registered in 2013 and 2014.

According to the report, the reactivation of investments in 2021 occurred in all subregions. The countries that received the most money were Brazil (33% of the total), Mexico (23%), Chile (11%), Colombia (7%), Peru (5%) and Argentina (5%).

In central America, Costa Rica positioned itself as the main recipient of the subregion for second consecutive Year. In Guatemala, a large acquisition in the telecommunications sector explained the considerable increase registered. Panama, for its part, managed to recover after the strong blow that investments received in 2020.

In the Caribbean, Guyana was the country that presented the highest growth in amount, surpassing the Dominican Republic, which in previous years had led the reception of investments in this subregion.

Services and natural resources, the most demanded sectors

The services and natural resources sectors, with increases of 39% and 62%, respectively, were the most dynamic sectors, the document indicates. On the other hand, the manufacturing sector lost 14%, which is explained by the decrease in investment in Brazil.

The European Union and the United States were the main investors in 2021representing 36% and 34% of the total, respectively.

Telecommunications and renewable energies remained the sectors that arouse the greatest interest from foreign investors for the development of new projects; however, the announcements of new investment projects did not pick up in 2021 and are at their lowest point since 2007 (51.5 billion dollars). This coincides with the increased interest of investors in the development of new projects in developed economies, mainly in the European Union and the United States.

The number of mergers and acquisitions in the region in 2021 increased by 33%, but it is still at one of the lowest levels of the decade. The 20 largest operations totaled 18 billion dollars and occurred in Brazil, Chile, Colombia, Guatemala and Mexico.

“In a region with low general levels of investment, direct foreign investment is fundamental for the design of a productive policy”, emphasizes the executive secretary of ECLAC, José Manuel Salazar-Xirinachs.

“To achieve a positive impact from 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, job quality, environmental sustainability, innovation and technological complexity”, he added.

For Salazar-Xirinachs, the cascading crises that the region is experiencing make it necessary to define well the strategies to position the countries of Latin America and the Caribbean in the world investment panorama.

Latin America, the largest growth market for pharmaceuticals

In 2021, the flows of Latin American transnational companies (trans-Latins) they also recovered from the sharp fall of the previous year (+302%). While Brazil, Chile and Colombia showed an increase in direct investment flows abroad, Mexico registered a setback.

The second chapter of the report, dedicated to foreign direct investment in the pharmaceutical industry in the region, states that this constitutes a strategic tool for the development of capacities in this sector in Latin America and the Caribbean.

Transnational companies are the ones that make the largest investments in research and development (R&D) and in the registration of patents, so the transfer of technology and knowledge plays a key role in the development of local industrial capacities.

According to the document, Latin America, with 660 million inhabitants, is projected as the market with the highest growth in sales of pharmaceutical products in the world between 2021 and 2026.

In the region, the pharmaceutical industry is small (0.4% of the region’s GDP and 0.2% of employment), but it has high productivity, employs skilled workers and wages are higher than in the rest of the manufacturing industry.

For this reason, the region needs sectoral strategies and mechanisms for identifying quality investments, complemented by incentives for national investment and local research and development, underlines the UN agency.

Electric charging of a car in a garage.

Electric vehicles, an opportunity

In the third chapter, entitled The emerging electric vehicle industry: opportunities for Latin Americait is highlighted that climate change and the process of transformation of the automotive sector open an opportunity to promote investment and develop productive capacities. To advance in this direction, more ambitious and coherent productive policies are required to stimulate demand and support supply, the Commission states.

Vehicle manufacturers and energy companies, through more proactive business models, can become agents for the diffusion, development and expansion of technologies. The most interesting opportunities are found in the segment of electric buses for public transport and where it is necessary to define a clear production policy for the entire sector, the report concludes.