Amid the COVID-19 cri­sis, Latin Amer­i­ca and the Caribbean re­ceived in 2020 the low­est amount of For­eign Di­rect In­vest­ment in a decade, ECLAC says.

In a new re­port, ECLAC calls on the re­gion’s coun­tries to chan­nel FDI flows — which are ex­pect­ed to hold steady in 2021 — to­wards ac­tiv­i­ties that gen­er­ate greater pro­duc­tiv­i­ty, in­no­va­tion and tech­nol­o­gy.

(ECLAC, Au­gust 5, 2021) — In the con­text of the se­vere health, eco­nom­ic and so­cial cri­sis prompt­ed by the COVID-19 pan­dem­ic, Latin Amer­i­ca and the Caribbean re­ceived $105.48 bil­lion dol­lars in For­eign Di­rect In­vest­ment in 2020 — 34.7% less than in 2019, 51% less than the record high achieved in 2012, and the low­est amount since 2010, the Eco­nom­ic Com­mis­sion for Latin Amer­i­ca and the Caribbean (ECLAC) in­di­cat­ed to­day, up­on pre­sent­ing its an­nu­al study For­eign Di­rect In­vest­ment in Latin Amer­i­ca and the Caribbean 2021.

Glob­al­ly, the amount of For­eign Di­rect In­vest­ment (FDI) dropped by 35% in 2020 to ap­prox­i­mate­ly $1 tril­lion dol­lars, which rep­re­sents the low­est val­ue since 2005. Latin Amer­i­ca and the Caribbean has ex­pe­ri­enced a down­ward trend since 2013, which has spot­light­ed the re­la­tion­ship be­tween FDI flows and com­mod­i­ty price cy­cles, main­ly in South Amer­i­ca, ac­cord­ing to the re­port launched at a vir­tu­al press con­fer­ence held by Ali­cia Bárce­na, the Unit­ed Na­tions re­gion­al or­ga­ni­za­tion’s Ex­ec­u­tive Sec­re­tary.

The in­ter­na­tion­al con­text sug­gests that glob­al FDI flows will re­cov­er slow­ly. Fur­ther­more, the pur­suit of as­sets in sec­tors that are strate­gic for the in­ter­na­tion­al re­ac­ti­va­tion and for pub­lic plans to trans­form the pro­duc­tive struc­ture (in­fra­struc­ture, the health in­dus­try, the dig­i­tal econ­o­my) in­di­cates that most of these op­er­a­tions will be cen­tered on Eu­rope, North Amer­i­ca and some coun­tries in Asia, in­creas­ing glob­al asym­me­tries, the study warns.

In Latin Amer­i­ca and the Caribbean, FDI projects ex­pe­ri­enced a re­bound be­tween Sep­tem­ber 2020 and Feb­ru­ary 2021; how­ev­er, from that month to May 2021, it ap­pears that a new drop oc­curred in the val­ue of the an­nounce­ments made.

“In this sce­nario, it is dif­fi­cult to imag­ine that FDI in­flows in­to the re­gion could in­crease by more than 5% in 2021,” ECLAC’s re­port states.

“FDI has made rel­e­vant con­tri­bu­tions in Latin Amer­i­ca and the Caribbean, but there are no el­e­ments in­di­cat­ing that in the last decade it has con­tributed to sig­nif­i­cant changes in the re­gion’s pro­duc­tive struc­ture or that it has served as a cat­a­lyst for trans­form­ing the pro­duc­tive de­vel­op­ment mod­el. To­day, the chal­lenge is greater due to the char­ac­ter­is­tics and mag­ni­tude of the cri­sis. We need to chan­nel FDI to­wards ac­tiv­i­ties that gen­er­ate greater pro­duc­tiv­i­ty, in­no­va­tion and tech­nol­o­gy,” Ali­cia Bárce­na sus­tained.

ECLAC, she said, has iden­ti­fied eight strate­gic sec­tors to dri­ve a big push for sus­tain­abil­i­ty in the re­gion. These sec­tors — which could be bol­stered by FDI — are the tran­si­tion to re­new­able en­er­gy; sus­tain­able elec­tro­mo­bil­i­ty in cities; an in­clu­sive dig­i­tal rev­o­lu­tion; the health-care man­u­fac­tur­ing in­dus­try; the bioe­con­o­my; the care econ­o­my; the cir­cu­lar econ­o­my; and sus­tain­able tourism.

The re­port in­di­cates that FDI in­creased in just five of the re­gion’s coun­tries in 2020: the Ba­hamas and Bar­ba­dos in the Caribbean; Ecuador and Paraguay in South Amer­i­ca; and Mex­i­co, which is the sec­ond-biggest re­cip­i­ent in the re­gion af­ter Brazil. The nat­ur­al re­sources and man­u­fac­tur­ing sec­tors, with de­clines of -47% and -38%, re­spec­tive­ly, were the hard­est hit in 2020. Re­new­able en­er­gy held steady as the sec­tor in the re­gion that sparks the most in­ter­est among for­eign in­vestors.

In 2020, the Unit­ed States in­creased its par­tic­i­pa­tion in the re­gion’s FDI from 27% to 37%, amid a sharp de­cline for Eu­rope (which fell from 51% to 38%), and Latin Amer­i­ca (which went from 10% to 6%).

“The small­er de­cline of the Unit­ed States as a source of FDI is due main­ly to the in­crease in that coun­try’s in­vest­ments in Brazil in 2020. In con­trast, the in­flows from the two Eu­ro­pean coun­tries that had the most in­vest­ments in Brazil – the Nether­lands and Lux­em­bourg – fell be­tween 2020 and 2019, which led to Eu­rope hav­ing less weight as an in­vestor,” the doc­u­ment states.

In 2020, the flows of Latin Amer­i­can transna­tion­al en­ter­pris­es (known as trans­lati­nas) al­so plunged (-73%), al­though with sharp het­ero­gene­ity: while Chile and Mex­i­co showed an in­crease in di­rect in­vest­ment flows abroad, Ar­genti­na, Brazil, Colom­bia and Pana­ma record­ed set­backs.

“In ad­di­tion to main­tain­ing emer­gency aid for the most vul­ner­a­ble sec­tors of the pop­u­la­tion and small­er com­pa­nies, the re­gion’s coun­tries should set in mo­tion strate­gic plans both for re­ac­ti­va­tion and the trans­for­ma­tion of pro­duc­tion. Gov­ern­ments and the pri­vate sec­tor should use their ca­pac­i­ties so that the pol­i­cy for at­tract­ing for­eign cap­i­tal be­comes part of in­dus­tri­al pol­i­cy as an in­stru­ment for trans­form­ing the pro­duc­tive struc­ture,” Bárce­na em­pha­sized.

The sec­ond chap­ter of the re­port, en­ti­tled “Chi­nese in­vest­ment in a chang­ing world: reper­cus­sions for the re­gion”, posits that:

“Latin Amer­i­ca and the Caribbean’s process for re­cov­er­ing from the COVID-19 pan­dem­ic is an op­por­tu­ni­ty to start a new phase in its eco­nom­ic re­la­tions with Chi­na and to de­vel­op poli­cies to en­sure that in­vest­ments by that coun­try con­tribute to build­ing pro­duc­tive ca­pac­i­ties in re­ceiv­ing coun­tries, to es­tab­lish­ing ties with lo­cal sup­pli­ers, to cre­at­ing em­ploy­ment, and to pro­mot­ing sus­tain­able de­vel­op­ment. Mul­ti­lat­er­al­ism must be part of this strate­gic ap­proach.”

Fi­nal­ly, the third chap­ter, en­ti­tled “In­vest­ment strate­gies in the dig­i­tal age”, analy­ses dig­i­tal de­vel­op­ment in the world and the re­gion through a con­cep­tu­al mod­el that in­cludes three di­men­sions — con­nect­ed econ­o­my, dig­i­tal econ­o­my and dig­i­tized econ­o­my — and ad­dress­es nu­mer­ous chal­lenges re­lat­ed to in­clu­sion, in­no­va­tion, reg­u­la­tion and tax­a­tion, among oth­ers. FDI can con­tribute to the dig­i­tal trans­for­ma­tion in Latin Amer­i­ca and the Caribbean, ECLAC af­firms, but if the struc­tur­al char­ac­ter­is­tics of the re­gion’s economies are not tak­en in­to ac­count, dig­i­tal­iza­tion could widen ex­ist­ing gaps and pro­duce greater ex­clu­sion and dis­trib­u­tive in­equal­i­ty, it con­cludes.