FDI flows to LAC region climb to US$189b

The Economic Commission for Latin America and the Caribbean, ECLAC, says flows of FDI or foreign direct investments to Latin America and the Caribbean totalled US188.962 billion last year.

The figure represents a 7.1 per cent increase over the flows in 2023.

ECLAC, a regional United Nations body, said the 2024 figure represented, on average, 13.7 per cent of the region’s gross fixed capital formation, and 2.8 per cent of gross domestic product, below the levels recorded in the 2010s, when it accounted for 16.8 per cent and 3.3 per cent, respectively.

“At ECLAC, we believe that Latin America and the Caribbean must harness foreign direct investment to achieve more productive, inclusive and sustainable development. Using FDI as a strategic tool within productive development policies will be key to achieving this,” said ECLAC’s executive secretary, José Manuel Salazar-Xirinachs, at the launch of the annual report Foreign Direct Investment in Latin America and the Caribbean 2025.

“Fittingly, we include in this report a series of guidelines that can help improve the technical, operational, political and prospective capabilities of countries and their territories in relation to policies aimed at attracting investment and creating a positive impact on productive development,” Salazar-Xirinachs said.

ECLAC said an analysis of FDI by component indicates that growth in 2024 was driven by transnational firms that already operated in the region, mainly due to increased reinvestment of earnings, while the contributions of capital remain stagnant, which reflects new companies’ limited interest in locating in the region.

The UN body said that project announcements, meanwhile, rose due to a big push from hydrocarbons investments, while renewable energy and more technology-intensive sectors lost ground in this area.

The report noted that while FDI flows grew in 2024 in the Caribbean, Central America and Mexico, he results in South American countries were disparate.

There was an increase in FDI inflows to manufacturing and a decline in the services sector, which led to these two sectors having similar weight as a share of FDI, with 43.6 percent and 40.4 per cent, respectively. The natural resources sector had a smaller share, 16 per cent of the regional total.

The United States consolidated its position as the biggest investor in Latin America and the Caribbean, accounting for 38 per cent of the value invested in 2024. The share of the European Union, excluding Luxembourg and the Netherlands, fell to 15 per cent of the regional total in 2024, the lowest figure since 2012.

The investments coming from within Latin America and the Caribbean represented 12 per cent of FDI inflows, ranking as the third place of origin. Meanwhile, Chinese FDI represented just two per cent of total inflows in 2024.

ECLAC said it is worth considering that only a small proportion of FDI flows emanating from China are recorded in balance of payments statistics, since a significant number of Chinese investments pass through third countries and another large amount has been in the form of purchases of assets that already belonged to foreign companies or in modalities that do not comprise FDI, for example, as concessions or construction contracts.

BIGGEST INVESTOR

With regard to the behaviour of Latin American transnational corporations, the report shows that FDI outflows from the region increased by 47 per cent in 2024, totalling US$53.033 billion dollars.

Brazil was the biggest investor abroad (46 per cent of the total), despite having experienced a slight decline in FDI outflows (three per cent), while investments coming from Mexico showed the greatest growth.

ECLAC also focused on FDI in the mining sector, especially in the segment of critical minerals for the energy transition. It said the region has a prominent global position in terms of reserves, production and exportation of critical minerals – particularly copper and lithium – which poses an unprecedented opportunity to attract new FDI and simultaneously implement productive development policies.

Between 2005 and 2024, Latin America and the Caribbean was a leading region in the global market for critical minerals, with 1,152 FDI project announcements in the minerals and metals sectors, totalling US$230.065 billion.

However, ECLAC contends that, in terms of production and attracting FDI, Latin America and the Caribbean has not managed to keep apace of other regions, with the exception of lithium, and that this leadership did not entail greater diversification of the export basket.

According to trade data for the 2019-2023 period presented in the document, 62 per cent of the region’s critical mineral exports corresponded to products that were either unprocessed or subject to a basic refining process.

The meagre productive diversification related to mining in Latin America and the Caribbean reveals that, in general, the region’s countries have not managed to articulate their tools for attracting FDI with their productive development policies.

Thus, despite having significant productive capacities in mining generally, and in critical minerals in particular, the region has not been able yet to translate all that potential into greater value added and productive linkages related to critical minerals.

According to ECLAC, this weakness, and other aspects, can be resolved by developing and/or strengthening the technical, operational, political and prospective capabilities in the area of mining management and productive development policies related to that endeavour.

With regards to digital transformation and foreign direct investment, trends, challenges and opportunities for Latin America and the Caribbean, ECLAC warns that while progress has been made on digitalization in the LAC countries, significant gaps remain in technology adoption and enabling conditions, which contribute to the region having a limited share of global FDI flows linked to the digital transformation, estimated at seven per cent of the total global value.

ECLAC noted that from a sectoral viewpoint, the largest dollar amount of investment announcements has been in communications, which not only provides connectivity but also plays a central role in supporting critical infrastructure for artificial intelligence, such as data centres and high-speed networks.

Meanwhile, the software and computer services sector, with lower amounts of announced investment, accounts for 52 per cent of the total number of project announcements and represents an important source of quality employment.

In this context, ECLAC analysed the similarities and differences in institutional strategies and capacities for promoting, attracting and facilitating FDI in key sectors for the digital transformation, their articulation with other policies, and their governance mechanisms, proposing 10 guidelines that can contribute to strengthening policies to attract FDI for this transformation.

It said aligning investment promotion strategies with digital and productive development policies is key to improving the coherence and effectiveness of these measures.

CMC