SANTIAGO, Chile – In a new report by the Economic Commission for Latin America and the Caribbean (ECLAC) says amid the COVID-19 crisis, the region received in 2020 the lowest amount of foreign direct investment (FDI) in a decade.
Alicia Bárcena, ECLAC’s executive secretaryECLAC’s annual study – launched at a virtual press conference hosted by Alicia Bárcena, ECLAC’s executive secretary – says that, in the context of the severe health, economic and social crisis prompted by the COVID-19 pandemic, Latin America and the Caribbean received US$105.48 billion dollars in FDI in 2020 – 34.7 percent less than in 2019, 51 percent less than the record high achieved in 2012, and the lowest amount since 2010.
Globally, the report says the amount of FDI dropped by 35 percent in 2020 to about US$1 trillion, 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,” the report says.
The international context, it 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,” the report says. “In this scenario, it is difficult to imagine that FDI inflows into the region could increase by more than 5 percent in 2021.”
Bárcena said that 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.,” she said. “We need to channel FDI towards activities that generate greater productivity, innovation and technology.”
ECLAC, she said, has identified eight strategic sectors “to drive a big push for sustainability in the region.””
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 report says the natural resources and manufacturing sectors, with declines of -47 percent and -38 percent, respectively, were the hardest hit in 2020.
The second chapter of the report, “Chinese investment in a changing world: repercussions for the region,” says 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.”
The report’s third chapter, “Investment strategies in the digital age,” analyzes digital development in the world and the region through a conceptual model that includes three dimensions (connected economy, digital economy and digitized economy).
The chapter 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,” the report says, but adds that, “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.”
