Foreign direct investments (FDI) to the Latin America and the Caribbean (LAC) region fell by a little over a third in 2020 as investors shied away from the region due to economic uncertainties caused by the novel coronavirus pandemic. FDI inflows to the region last year reached US$105.48 billion, that was 34.7 per cent less than in 2019, the Economic Commission for Latin America and the Caribbean (ECLAC) reports.

The inflow was the lowest for the region since 2010, according to the ECLAC’S Foreign Direct Investment in Latin America and the Caribbean 2021 report. It was also 51 per cent lower than the record high achieved in 2012.

The LAC region has been experiencing lower flows of FDI since 2013, which has spotlighted the relationship between FDI flows and commodity price cycles, mainly in South America, according to the report.

FDI increased in just five of the region’s countries in 2020 — The Bahamas, Barbados, Ecuador, Paraguay, and Mexico. Mexico is the second-biggest recipient of FDI in the region after Brazil.

Investments in the natural resources and manufacturing sectors declined the most in 2020, the report stated. Renewable energy, however, held steady as the sector in the region that sparks the most interest among foreign investors.

ECLAC pointed out that while the region experienced a rebound in FDI projects between September 2020 and February 2021, announcements about new projects declined up to May 2021, making it difficult to keep projections that FDI inflows into the region could increase by more than five per cent in 2021.

ECLAC’s executive secretary Alicia Bárcena said, “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”.

In 2020, the flows of Latin American transnational enterprises also plunged 73 per cent, and while Chile and Mexico showed an increase in direct investment flows abroad, Argentina, Brazil, Colombia and Panama recorded setbacks.

Globally FDI dropped by 35 per cent in 2020 to approximately $1 trillion, which represents the lowest value since 2005. Nonetheless, the international context suggests that global FDI flows will recover slowly.

However, the study warned that 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, and the digital economy — indicates that most of these operations will be centred on Europe, North America and some countries in Asia, increasing global asymmetries.