SANTIAGO, Chile – Latin América and the Caribbean recorded a second consecutive year of declines in the flow of global foreign direct investment (FDI) receiving US$184.304 billion dollars last year, according to a new report issued by the Economic Commissioner for Latin America and the Caribbean (ECLAC).
It said that the 2023 figure is 9.9 per cent below what was recorded in 2022, but still above the average notched in the last decade.
ECLAC said to promote FDI’s positive effects on the region’s economies, the new report proposes a series of guidelines for formulating and strengthening policies to attract investment and for building territorial strategies integrated into productive development policies.
ECLAC said that the weight of FDI inflows as a share of the region’s GDP also declined in 2023, it represented 2.8 per cent.
However, the region’s participation in global FDI flows (14 per cent) was higher than the average percentage seen during the 2010s (11 per cent), according to the annual report titled “Foreign Direct Investment in Latin America and the Caribbean 2024”.
While Latin America, as well as South America recorded mixed success in attracting FDIs, the study showed that Central America and the Caribbean also received more investments than in 2022 (12 per cent and 28 per cent, respectively).
In Central America, nearly all the countries received more FDI, with particularly notable growth in Costa Rica (28 per cent) and Honduras (33 per cent), while the increase in the Caribbean is due mainly to greater inflows in Guyana (64 per cent) and the Dominican Republic (seven per cent).
“Foreign Direct Investment can help tackle, in particular, the first of the three development traps in which Latin America and the Caribbean is caught: the trap of low capacity for growth,” said ECLAC’s executive secretary, José Manuel Salazar-Xirinachs, who presented the study’s main conclusions.
“To this end, we need policies to attract investments that put emphasis not only on attracting them but also on what happens once they are established, and that connect these policies with the productive development policies of countries and their territories. All of this requires strengthening the technical, operational, political and prospective (TOPP) capabilities in this area,” he added.
ECLAC said regarding the sectors involved, 46 per cent of FDIs in 2023 went to services, although this sector received fewer investments than in 2022 (-24 per cent.
For the second year, more FDI was received in manufacturing (more than nine per cent), with increases in Central America, Colombia, the Dominican Republic and Mexico. Inflows in the natural resources sector also grew (16 per cent), despite the decline seen in Brazil.
In terms of the components of FDI, reinvested earnings increased by 15 per cent, representing nearly half the inflows in 2023, while equity and intercompany loans fell by 22 per cent and 36 per cent, respectively.
The United States and the European Union were the main investors, with the former accounting for 33 per cent of the total and the EU, without the Netherlands or Luxembourg, accounting for 22 per cent.
China, meanwhile, reduced its investments in the region.
Meanwhile, the region’s investment abroad dropped by 49 per cent, returning to normal levels after peaking in 2022.
ECLAC said with few exceptions, FDI continues to be concentrated in sectors and countries that offer relatively inexpensive natural resources or labour.
The United Nations regional organisation said the goal is to add more value, in the case of natural resources, as well as to diversify into and scale up sectors with more skilled labor, and increase the technological spillover and productive linkages that are derived from such investment.
More specifically, the report provides 17 guidelines for formulating and strengthening policies to attract FDI as a factor in the region’s sustainable and inclusive productive development.
Salazar-Xirinachs said in addition to designing policies to attract investment as part of their productive development policies, it is key that countries base their implementation on governance arrangements at the highest political level and strengthen their TOPP capabilities.
Similarly, it is urgently necessary to involve actors from the public and private sectors, academia and civil society in the construction and implementation of FDI strategies to ensure legitimacy, cooperation and the harnessing of benefits once the investments are established.
ECLAC said it is also necessary to provide Investment Promotion Agencies with resources, qualified staff and stability in the continuity of efforts to effectively promote investments; implement a rigorous system for monitoring and evaluating policies, incentives and conditionalities; develop policies and projects to strengthen the business climate, including well-designed incentives and the promotion of cluster initiatives that address specific bottlenecks; and foster activities in Research & Development (R&D), the training of human talent, and supplier development.
Furthermore, it is important to attract FDI to sectors or areas that are considered a priority for the region’s sustainable productive development.
ECLAC said it has proposed at least 14 driving sectors in industry, services and areas related to the Big Push for Sustainability.
These include the pharmaceutical and life-sciences industry; the medical devices industry; the exportation of ICT-enabled modern services; the care society; e-government; the energy transition; electromobility; the circular economy; the bioeconomy; sustainable water management; and sustainable tourism.
