Foreign investment in Latin America increased 40% in 2021, but did not recover pre-pandemic levels.

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The Latin America and Caribbean region received a total of US$142.794 billion (€138.066 billion) in foreign direct investment in 2021, which is 40.7% more than in 2020, although pre-pandemic levels have yet to recover.

According to the annual report ‘Foreign Direct Investment in Latin America and the Caribbean 2022’ prepared by the Economic Commission for Latin America and the Caribbean (ECLAC), the region lost share as a destination for global investments -which increased by 64% in 2021, to $1.6 trillion (€1.54 trillion)- and only accounted for 9% of the total compared to the 14% it reached in 2014.

The reactivation of investments over the past year occurred in all sub-regions, with Mexico(23%), Chile (11%), Colombia (7%), Peru (5%) and Argentina (5%) as the countries that received the largest amounts.

In Central America, Costa Rica was the leading recipient in the region for the second consecutive year, while in Guatemala, a major acquisition in the telecommunications sector accounted for the considerable increase. Panama, for its part, managed to recover after the heavy blow to investment in 2020.

By origin, the European Union and the United States were the main investors in Latin America last year, accounting for 36% and 34% of the total, respectively.

SERVICES AND NATURAL RESOURCES, THE MOST DYNAMIC SECTORS The services and natural resources sectors, with increases of 39% and 62%, respectively, were the most dynamic, according to the ECLAC document. On the other hand, in the area of manufacturing, there was a 14% drop in investment inflows, due to the decrease in investments in Brazil.

In turn, telecommunications and renewable energies continued to be the sectors that arouse the greatest interest of foreign investors in new projects. However, announcements of new investment projects did not rebound in 2021 and are at their lowest point since 2007 (€49,791 million).

«In a region with low overall levels of investment, foreign direct investment is fundamental for the design of a productive policy,» emphasized Cepal’s executive secretary, José Manuel Salazar. «To achieve a positive impact of foreign direct investment, it is necessary to attract high productivity investments. The cascading crises that the region is experiencing obliges us to define strategies to position Latin American and Caribbean countries in the global investment panorama,» he warned.

PHARMACEUTICAL AND AUTOMOBILE INDUSTRIES NEED INVESTMENT The second chapter of the report, dedicated to foreign direct investment in the pharmaceutical industry in the region, states that foreign direct investment is a strategic tool for capacity building in this sector in Latin America and the Caribbean.

In the region, the pharmaceutical industry is small (0.4% of the area’s GDP and 0.2% of employment), but it has high productivity, employs skilled workers and wages are higher than in the rest of the manufacturing industry. Therefore, the region needs sectoral strategies and mechanisms for identifying quality investments, complemented by incentives for national investments and local research and development, according to ECLAC.

For its part, the document highlights that the electric vehicle industry represents «an opportunity» to promote investments and develop productive capacities in Latin America and the Caribbean. «Vehicle manufacturers, through more proactive business models, can become agents for the dissemination, development and expansion of technologies,» the report concludes.