FDI works in a different way to financial investments which focus on financial markets while foreign direct investments mainly aim to achieve the generation of jobs through the purchase or sale of national companies or the expansion of international companies. According to ECLAC, the sectors that received most resources in 2022 were services, energy (renewable and non-renewable) and manufacturing.
Brazil leads the list as the main recipient in Latin America with 41% of the regional total and the country is the fifth highest world destination for FDI followed by Mexico (17%), Chile (9%), Colombia (8%), Argentina (7%), and Peru (5%).
In Brazil, the volume of FDI soared by 97% from 2021 to 2022 while for Mexico, growth was smaller reaching 14% compared to the previous year.
The increase in FDI in Latin America and the Caribbean and other regions of the world is in contrast to a decrease in FDI in the United States and certain countries in the European Union. In total, world FDI flows declined by 12% compared to 2021, totaling US$1.29 trillion.
Potential still below
In comparison with the rest of the world, Latin America attracted only 8% of the global flow of FDI in 2022, receiving the lowest share behind Europe, Asia-Pacific, Africa, the Middle East and North America.
Regionally, 54% of FDI entered the services sector, although the manufacturing and natural resources sectors also saw increased investment. Financial services, energy, gas and water, communications, and transport received the largest share in the services sector.
The United States (38%) and the European Union (17%) were the top investors in the region while FDI from countries within the Latin American and Caribbean region itself witnessed a slight increase from 9% to 14% of the total FDI.
Energy transition
ECLAC believes that energy transition should be the main sector for new investments in the region in the coming years, mainly in clean energy matrices such as wind, solar and green hydrogen.
“Mitigating climate change and adapting to its effects requires a rethinking of production models and the adoption of innovative solutions to reduce greenhouse gas emissions. Reducing emissions will entail a radical energy transition with a shift to renewable, sustainable sources, changes in consumption patterns and more efficient use of natural resources,” the report highlights.
Attracting FDI to develop renewable resources would help to provide universal access to electricity in Latin America and the Caribbean. According to ECLAC projections, this could generate a growth of 1.3% of regional annual GDP over the next 10 years which would generate 7 million new green jobs and reduce greenhouse gas emissions by 35%.
“The challenge of attracting and retaining foreign direct investment that effectively contributes to the sustainable and inclusive productive development of the region is more topical than ever. There are new opportunities in an era of reconfiguration of global value chains and geographical reallocation of production in the face of a changing globalization,” said ECLAC Executive Secretary, José Manuel Salazar-Xirinachs.
EU’s pledged investments
The President of the European Commission, Ursula von der Leyen, promised €45 billion in “high quality” investments in Latin America. This was announced during the European Union-Latin America Business Forum in Brussels shortly before the official start of the summit between the countries of the EU and the Community of Latin American and Caribbean States (CELAC).
According to Von der Leyen, the investments will be made within the framework of the Global Gateway, the EU’s strategy to work with countries worldwide to address global challenges. The main pillars of the strategy are green transition, digital transformation, basic sanitation, and human development.
“Unlike other foreign investors, we are not only interested in investing in the pure extraction of raw materials. We want to collaborate with you to build local capacities for the production of batteries and final products, such as electric vehicles,” said the European leader.
