(ECLAC) translated from Spanish by Jonathan Mason, December 7th,2020–The structural problems of the Latin American and Caribbean economies and the new international scenarios make it necessary for foreign direct investment (FDI) to contribute to promoting development with equality and environmental sustainability in the region, says ECLAC in its annual report on the subject.
Latin America and the Caribbean received 160,721 million dollars in foreign direct investment in 2019, 7.8% less than in 2018, a fall that would worsen in 2020, since as a result of the crisis derived from the COVID-19 pandemic a decrease of between 45% and 55% is expected in the inflow of these flows, the Economic Commission for Latin America and the Caribbean (ECLAC) reported today when presenting its annual study Foreign Direct Investment in Latin America and the Caribbean 2020 (available on the ECLAC website soon).
At the global level, the amounts of foreign direct investment (FDI) would decline by 40% in 2020, and from 5% to 10% in 2021. Thus, in 2021, FDI would reach its lowest value since 2005. Latin America and the Caribbean is the region that would have the steepest decline, explains the ECLAC document launched at a virtual press conference by the Executive Secretary of the United Nations regional body, Alicia Bárcena.
Since 2012, when the historical maximum was reached, the fall in foreign investment flows has been almost uninterrupted in Latin America and the Caribbean, which has made evident, mainly in the countries of South America, the relationship that exists in the region between FDI flows, the macroeconomic cycle and commodity price cycles, the report argues.
As in previous years, the study shows great heterogeneity in the national results and there is no subregional pattern: in 17 countries there is a drop in inflows in 2019 compared to 2018 and in 9 countries there is an increase. In 2019, the five countries that received the most investments were Brazil (43% of the total), Mexico (18%), Colombia (9%), Chile (7%) and Peru (6%).
In Central America, FDI inflows grew only in Panama and Guatemala. In the Caribbean, FDI directed to the Dominican Republic overcame the fall of the previous year, Trinidad and Tobago registered positive investments after three years of negative balances and in Guyana, as in 2018, there was a very important year-on-year increase, driven by investments for the exploitation of hydrocarbons and related sectors, capitals that positioned the country as the second recipient of FDI in the subregion.
When analyzing the period 2010-2019, Europe is consolidated as the most important investor in the region, followed by the United States. Intraregional investments, meanwhile, are reduced from 12% to 6%.
On the other hand, the report highlights the renewable energy sector as the sector with the highest number of project announcements in the last five years.
Regarding the behavior of Latin American transnational companies, known as trans-Latins, the ECLAC publication reports a 75% increase in outward FDI from the region in 2019. However, if the decade 2010-2019 is analyzed, it is observed that Latin American investment has lost steam, according to the Commission.
“The contributions made by FDI in the region have been relevant, as a complement to national investment and a source of new capital, as well as for the expansion of export activities and the development of the automotive industry, telecommunications, some segments of the digital economy and also of sectors that today acquire strategic importance in the context of the COVID-19 pandemic, as is the case of the pharmaceutical and medical device industries”, the study highlights.
“The FDI received by Latin America and the Caribbean has not catalyzed relevant changes in the productive structure of the region, largely because the policies to attract these flows have not been articulated with those of productive development. FDI offers great opportunities to move towards a new sustainable economy”, declared Alicia Bárcena. “It is urgent to recover the role of industrial policies as an instrument of transformation of the productive structure of the region,” he remarked.
The senior official recalled that ECLAC has identified seven dynamic sectors that have a strategic role because they promote technical change, create jobs and reduce external restrictions and the environmental footprint.
These sectors, which could be underpinned by FDI, are: the transformation of the energy matrix based on renewable energies; sustainable mobility and urban spaces; the digital revolution for sustainability; the health manufacturing industry; the bioeconomy, that is, sustainability based on biological resources and natural ecosystems; the circular economy; and sustainable tourism.
In the second chapter of the report, entitled “Towards a new post-pandemic global productive geography: the reorganization of global value chains”, ECLAC poses as challenges for the region to contain the pressure of national relocation (reshoring ) towards the United States, to capture the Relocation opportunities that would make it possible to strengthen regional production systems (nearshoring) and articulate FDI attraction strategies with industrial policies to create local capacities.
Finally, the third chapter indicates that Latin America and the Caribbean has achieved a good export position in medical devices, driven precisely by transnational companies, with the case of Mexico, Costa Rica and the Dominican Republic standing out.
“In Latin America and the Caribbean, the COVID-19 crisis shows the growing importance of stimulating regional cooperation and the development of a regional market for health and medical devices and cross-border industrial centers.
The medical device industry requires manufacturing, scientific and technological capabilities that are present in several countries in the region and whose potentialities were revealed in the face of the health emergency.
The development of national industrial and technological capacities and the improvement of access to medical devices for the inhabitants of Latin America and the Caribbean is a strategic challenge, and to face it successfully, national and regional policy guidelines will be required”, the document concludes.