SANTIAGO, Chile, CMC—Latin America and the Caribbean recorded a second consecutive year of declines in the flow of global foreign direct investment (FDI), receiving US$184.304 billion last year, according to a new report issued by the Economic Commissioner for Latin America and the Caribbean (ECLAC).
It said that the 2023 figure is 9.9 percent below what was recorded in 2022 but still above the average notched in the last decade.
ECLAC is said to promote FDI’s positive effects on the region’s economies. The new report proposes a series of guidelines for formulating and strengthening policies to attract investment and for building territorial strategies integrated into productive development policies.
ECLAC said that FDI inflows’ weight as a share of the region’s GDP also declined in 2023; it represented 2.8 percent.
However, the region’s participation in global FDI flows (14 percent) was higher than the average percentage seen during the 2010s (11 percent), according to the annual report “Foreign Direct Investment in Latin America and the Caribbean 2024.”
While Latin America and South America recorded mixed success in attracting FDI, the study showed that Central America and the Caribbean also received more investments than in 2022 (12 percent and 28 percent, respectively).
In Central America, nearly all the countries received more FDI, particularly notable growth in Costa Rica (28 percent) and Honduras (33 percent). In comparison, the increase in the Caribbean is due mainly to more significant inflows in Guyana (64 percent) and the Dominican Republic (seven percent).
“Foreign Direct Investment can help tackle, in particular, the first of the three development traps in which Latin America and the Caribbean is caught: the trap of low capacity for growth,” said ECLAC’s executive secretary, José Manuel Salazar-Xirinachs, who presented the study’s main conclusions.
“To this end, we need policies to attract investments that emphasize not only attracting them but also what happens once they are established and that connect these policies with the productive development policies of countries and their territories. All of this requires strengthening the technical, operational, political, and prospective (TOPP) capabilities in this area,” he added.
ECLAC said regarding the sectors involved, 46 percent of FDIs in 2023 went to services, although this sector received fewer investments than in 2022 (-24 percent.
For the second year, more FDI was received in manufacturing (more than nine percent), with increases in Central America, Colombia, the Dominican Republic, and Mexico. Inflows in the natural resources sector also grew (16 percent) despite the decline seen in Brazil.
In terms of the components of FDI, reinvested earnings increased by 15 percent, representing nearly half the inflows in 2023, while equity and intercompany loans fell by 22 percent and 36 percent, respectively.
The United States and the European Union were the leading investors, with the former accounting for 33 percent of the total and the EU, without the Netherlands or Luxembourg, accounting for 22 percent.
China, meanwhile, reduced its investments in the region.
Meanwhile, the region’s investment abroad dropped by 49 percent, returning to normal levels after peaking in 2022.
ECLAC said with few exceptions, FDI continues to be concentrated in sectors and countries that offer relatively inexpensive natural resources or labor.
The United Nations regional organization said the goal is to add more value to natural resources, diversify into and scale up sectors with more skilled labor, and increase the technological spillover and productive linkages derived from such investment.
More specifically, the report provides 17 guidelines for formulating and strengthening policies to attract FDI as a factor in the region’s sustainable and inclusive productive development.
Salazar-Xirinachs said that countries design policies to attract investment and use them as part of their productive development policies. Countries must base their implementation on governance arrangements at the highest political level and strengthen their TOPP capabilities.
Similarly, it is urgently necessary to involve actors from the public and private sectors, academia, and civil society in constructing and implementing FDI strategies to ensure legitimacy, cooperation, and the harnessing of benefits once the investments are established.
ECLAC said it is also necessary to provide Investment Promotion Agencies with resources, qualified staff, and stability in the continuity of efforts to promote investments effectively; implement a rigorous system for monitoring and evaluating policies, incentives, and conditionalities; develop policies and projects to strengthen the business climate, including well-designed incentives and the promotion of cluster initiatives that address specific bottlenecks; and foster activities in Research & Development (R&D), the training of human talent, and supplier development.
Furthermore, attracting FDI to sectors or areas considered a priority for the region’s sustainable, productive development is essential.
ECLAC has proposed at least 14 driving sectors in industry, services, and areas related to the Big Push for Sustainability.
These include the pharmaceutical and life-sciences industry, the medical devices industry, the exportation of ICT-enabled modern services, the care society, e-government, the energy transition, electromobility, the circular economy, the economy, sustainable water management, and sustainable tourism.
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