ECLAC report shows 55% rise in LatAm FDI

The Economic Commission for Latin America and the Caribbean (ECLAC) has reported a substantial increase of 55.2% in Foreign Direct Investment (FDI) in the region in 2022, reaching a historic high of USD $224,579 million. This remarkable growth, the highest on record, can be attributed to various factors, including reinvestment of profits and expansion in the services sector. This surge in FDI, although aligned with post-pandemic economic recovery, is uncertain to sustain in 2023. Nonetheless, in 2022, FDI contributed 4.0% to the region’s GDP.

José Manuel Salazar-Xirinachs, Executive Secretary of ECLAC, emphasised the importance of attracting and retaining FDI for sustainable regional development. He stressed the need for countries to capitalise on new opportunities arising from changes in global value chains and production relocation. To maximise FDI’s impact on development, Salazar-Xirinachs urged robust policies focusing on value addition, human resource development, infrastructure, and building local capacities.

Brazil led the region in FDI reception in 2022, capturing 41% of the total, followed by Mexico, Chile, Colombia, Argentina, and Peru. Central America saw Costa Rica as the primary recipient, although Guatemala experienced a drop after an unusual spike in 2021. In the Caribbean, the Dominican Republic and Guyana were the primary beneficiaries.

The services sector received the majority of FDI, constituting 54% regionally. However, there was also an uptick in investments in manufacturing and natural resources. Leading investors were the United States and the European Union (excluding the Netherlands and Luxembourg). Notably, there was a rise in FDI from within the Latin America and Caribbean region, increasing from 9% to 14% of the total.

Latin American transnational companies, known as “translatinas,” invested a historic USD $74,677 million abroad in 2022. FDI project announcements within the region surged by 93%, totalling approximately USD $100,000 million. Surprisingly, the hydrocarbons sector led these announcements, followed by the automotive and renewable energy sectors.

ECLAC recognised the energy transition as a critical driver of future economic growth and urged governments to prioritise it. They emphasised that FDI plays a crucial role in accelerating the transition, technology transfer, and enabling emerging technologies. ECLAC called on governments to develop policies that promote investments in renewable energies, ensuring a rapid, secure, and competitive transition.

Despite the significance of renewable energy, ECLAC also highlighted the relevance of the non-renewable energy sector for specific countries in the region, particularly regarding revenue generation, productive development, and energy security. This consideration is essential to prevent any nation in the region from being left behind during the energy transition.

While 2022 marked a record year for FDI in Latin America and the Caribbean, the challenge lies in ensuring that these investments contribute to the region’s sustainable development. Effective government policies are needed to maximise the positive impact of FDI, especially in critical areas such as the energy transition.