SANTIAGO, Chile – The United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC) says that foreign direct investment (FDI) in the region rose by 40.7 percent in 2021, but did not return to pre-pandemic levels.
As a result, ECLAC, is calling on the regional countries to “use FDI strategically to strengthen and develop capacities that would contribute to sustainable and inclusive development.”
According to the annual report, “Foreign Direct Investment in Latin America and the Caribbean 2022”, Latin America and the Caribbean (LAC) received US$142.794 billion dollars in DI in 2021, an estimated 40.7 percent more than in 2020.
“But this growth was not enough to achieve the levels seen prior to the pandemic,” ECLAC said, noting that FDI inflows increased by 64 percent in 2021, reaching about US$1.6 trillion dollars.
As a destination for global investments, the LAC saw its share decline, however, representing nine percent of the total – “one of the lowest proportions in the last 10 years and far below the 14 percent recorded in 2013 and 2014.
The report said the reactivation of investments in 2021 occurred in all sub-regions, noting that in the Caribbean, Guyana was “the country that exhibited the greatest growth in inflows, surpassing the Dominican Republic, which in prior years had been the leading recipient of investments in that sub-region.”
The report said the services and natural resources sectors, with increases of 39 percent and 62 percent, respectively, were the most dynamic sectors.
In the manufacturing sector, the document said decline in FDI inflows in 2021 (-14 percent) was attributable to decreased investments in Brazil.
The European Union and the United States were the main investors in the region in 2021, representing 36 percent and 34 percent of the total, respectively.
ECLAC said telecommunications and renewable energy “held firm as the sectors that spark the most interest among foreign investors for carrying out new projects.
“However, the announcements of new investment projects did not rebound in 2021 and are at their lowest point since 2007 (US$51.500 billion). This coincides with greater interest on the part of investors in developing new projects in developed economies, mainly the European Union and the United States.”
The report said the number of mergers and acquisitions in the region increased (33 percent) in 2021, “but is still at one of the lowest levels in the last decade.”
ECLAC’s Executive Secretary, José Manuel Salazar-Xirinachs, said in a region with low overall investment levels, foreign direct investment is critical for designing production policy.
“For foreign direct investment to have a positive impact, it is necessary to coordinate productive development policies with the attraction of high-productivity investments, in activities that would support virtuous development processes in terms of inclusivity, employment quality, environmental sustainability, innovation and technological complexity.
“The cascading crises that the region is experiencing force us to define strategies to position Latin American and Caribbean countries on the world stage for investments,” he added.
The report examines FDI in the pharmaceutical industry in the region, noting that “FDI constitutes a strategic tool for capacity development in this sector in Latin America and the Caribbean.
“Transnational companies are the ones that make the biggest investments in Research and Development (R&D) and patents, which means that the transfer of technology and knowledge plays a key role in the development of local industrial capacities.”
According to the document, Latin America and the Caribbean, with 660 million inhabitants, is projected as the market that will have the world’s greatest growth in the sale of pharmaceutical products between 2021 and 2026.
It said that while the pharmaceutical industry in the region is small [0.4 percent of the region’s gross domestic product (GDP) and 0.2 percent of employment], “it has high productivity, it employs skilled workers, and the salaries are higher than in the rest of the manufacturing industry.
“For these reasons, the region needs sectoral strategies and mechanisms for identifying quality investments, complemented by stimulus for domestic investment and local research and development.”
The report also emphasizes that climate change and the process of transformation of the automotive sector “open a window of opportunity for promoting investments and developing productive capacities in Latin America and the Caribbean.
“To make progress in this regard, more ambitious and coherent production policies are needed to boost demand and bolster supply,” the report says. “Vehicle manufacturers and energy companies, through more proactive business models, can become agents for the dissemination, development and expansion of these new technologies.
“The most interesting opportunities lie in the segment of electric buses for public transportation, and that is where a clear production policy must be defined for the entire sector,” it adds.
