LAC foreign investments hit historic high
The Economic Commission for Latin America and the Caribbean, ECLAC, called on countries in the region to improve their policy design to take advantage of the contribution that foreign direct investments, or FDI, can make to the energy transition and to the region’s sustainable productive development.
Last year, Latin America and the Caribbean recorded US$224.58 billion in FDI, which the regional UN body said was 55 per cent higher than the levels recorded in 2021 and marked the highest value on record.
FDI flows grew in Latin America and the Caribbean and in other regions of the world, but decreased in the United States and some European Union countries. Consequently, worldwide foreign direct investments shrank by 12 per cent to US$1.29 trillion.
ECLAC said nearly all the countries of the LAC region received more FDI flows last year, including a positive shift within the Caribbean segment, fuelled mainly by greater investment in the Dominican Republic, which was the second-largest recipient country after Guyana.
ECLAC said that the 2022 results are mainly attributable to countries like Brazil, as well as increase in FDI in the services sector regionwide.
This dynamic is consistent with the post-pandemic recovery, but it’s still unclear as to whether the performance will be sustained this year, ECLAC noted in its yearly report Foreign Direct Investment in Latin America and the Caribbean 2023.
FDI inflows to LAC last topped US$200 billion in 2013. The current flows in 2022 represent four per cent of regional GDP.
“The challenge of attracting and retaining foreign direct investment that contributes effectively to the region’s sustainable and inclusive productive development is more relevant than ever. There are new opportunities in an era of reconfiguration of global value chains and geographic relocation of production in the face of a changing globalisation,” said ECLAC Executive Secretary Jos? Manuel Salazar-Xirinachs.
“The challenge is not only to attract and retain, but also to maximise FDI’s contribution to development, and to this end countries must focus on post-establishment productive development policies, which include the promotion of productive linkages, policies for adding value and moving up value chains, for human resources development, infrastructure and logistics, and building local capacities,” he emphasised.
At a regional level, 54 per cent of FDI flowed to the services sector, although both the manufacturing and natural resources sectors also rebounded. Financial services; electricity, natural gas and water; information and communications; and transportation-related services had the largest share of investments in the services sector as a whole.
The United States and the European Union, excluding the Netherlands and Luxembourg, were the main investors in the region, while regional FDI, that is, foreign investments made by Latin American and Caribbean countries in the LAC region, experienced a significant increase – rising from nine per cent to 14 per cent of the total FDI flows.
Additionally, the ECLAC report pointed to a more than 80 per cent increase in FDI from within LAC to destinations both inside and outside the region.
In 2022, the amount invested abroad by transnational Latin American companies – known as translatinas – reached a historic high of US$74.68 billion, which is the highest figure recorded since this data series began to be compiled in the 1990s.
Furthermore, the amount of FDI project announcements in Latin America and the Caribbean grew by 93 per cent in 2022, totalling nearly US$100 billion. For the first time since 2010, the hydrocarbons sector – coal, oil and gas – led the announcements with 24 per cent of the total, followed by the automotive sector with 13 per cent, and renewable energies 11 per cent.
The study includes analysis of FDI trends in non-renewable and renewable energies in the context of the energy transition and fulfilment of the Sustainable Development Goals. In addition, they address the key role of governments in this area, identifying challenges and opportunities and making policy recommendations.
The energy transition is identified by ECLAC as one of the sectors driving economic growth that can become a major engine for the region’s productive transformation, which means that countries and their territories should prioritise it within their productive development policies and agendas.
The percentage of installed capacity of renewable energy in Latin America and the Caribbean is higher than the global average, and the electrical power generation matrix is among the cleanest in the world.
“Therefore, if the region were to increase its supply of renewable energy, it could become a place of origin for the production of goods that are being produced today in countries with comparatively less clean matrixes,” said the UN agency. “FDI can play a critical role in accelerating the energy transition, facilitating technology transfer and enabling emerging technologies.”
The report asserted that Latin American and Caribbean countries must improve the design of policies to attract investment and strengthen their institutional capacities in this area.
“It is essential that progress be made on articulating efforts to attract FDI with countries’ and territories’ productive development strategies, and that FDI begin to be used with greater directionality as a strategic tool for furthering sustainable productive development processes,” ECLAC said.
CMC