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Five benefits of EU investments in Latin America and the Caribbean

by | Jan 28, 2024

In July 2023, EU investments in Latin America and the Caribbean would total approximately 45 billion euros in projects ranging from producing clean hydrogen and critical raw materials and expanding the data-cabling network to producing more advanced mRNA vaccines.

Below are five benefits that this new investment agenda will have in Latin America and the Caribbean:

Attracting more EU investments to Latin America and the Caribbean

The European Union is the third largest trading partner of Latin America and the Caribbean. It is just behind China and the United States. European companies have invested more in Latin America and the Caribbean than China, Japan, Russia, and India combined. In parallel, the nations of Latin America and the Caribbean are the largest net exporters of food and agricultural goods globally, with 15% of global exports. This figure shows the potential to stabilize international food prices, which benefits European consumers.

The EU imports a wide variety of raw materials and agricultural products from Latin America while it exports machinery, pharmaceutical products, and technological services. The EU investments in Latin America and the Caribbean can be promoted through different mechanisms, such as financial and technical cooperation and facilitating access to the European market for Latin American companies.

Overcoming socioeconomic gaps

EU investments in Latin America and the Caribbean could help overcome historical gaps in poverty, inequality, gender, health, education, productivity, and infrastructure. These are just some of them:

  • Approximately 200 million people (32% of the population) are poor.
  • Gender: Women occupy only 15% of management positions; They own only 14% of the companies and earn 16% less.
  • Inequality: the poorest 50% of the population receives 10% of the income, while the wealthiest 10% receives 55%
  • Infrastructure: Until 2030, Latin America and the Caribbean must invest approximately 2.2 billion dollars in the water and sanitation, energy, transportation, and telecommunications sectors to expand and maintain the infrastructure necessary to meet the region’s needs.

Accelerate the green transition, digital transformation, and human development

Organized by Spain and the Development Bank of Latin America and the Caribbean (CAF), the first meeting of the European Union and the Community of Latin American and Caribbean States (CELAC) Finance Ministers, on September 15, 2023, in Santiago de Compostela created mechanisms that guarantee the viability of EU investments in Latin America and the Caribbean and accelerate cooperation agreements. This is especially true in areas such as the green transition, digital transformation, and human development. The CAF is preparing three sectoral notes to focus on the following issues:

  • Green transition: The region has great potential for renewable energy resources. Renewables account for 33% of the region’s total energy supply, compared to just 13% globally. European investments in these technologies can significantly reduce greenhouse gas (GHG) emissions, achieving, at the same time, a lower-cost energy supply and, in the case of some countries – in the region and Europe – a lower dependence on imported products derived from fossil fuels.
  • Digital transformation: Connectivity issues will be addressed, from 4G and satellite solutions for remote and rural areas to fiber and 5G deployment, as well as the role of digital education and training in preparing the Latin American and Caribbean workforce for the future of work to leave no one behind. Likewise, smart digital regulation initiatives will be included, specifically on data privacy, cybersecurity, artificial intelligence and ethics, and taxation of digital services.
  • Human development: This note will focus on human development through participation in education – especially vocational education and training – and research, social and health protection systems, decent work and labor formalization, gender equality, and policies leading to achieving the Sustainable Development Goals (SDGs).

Strengthen regional integration

Currently, the EU has association, free trade, or political cooperation agreements with 27 of the 33 countries in the region and is the largest source of foreign direct investment in Latin America and the Caribbean (LAC), with a total of 45% of LAC FDI inflows during 2015 -2019 and 36% in 2021. According to the European Commission, trade in goods between regions reached 212 billion euros in 2020.

The EU could support regional integration initiatives in Latin America, facilitating trade and cooperation between countries. This would help increase Latin America’s competitiveness on the international stage. Currently, the CAF supports integration projects, especially cross-border trade, logistics corridors, energy efficiency projects, and the digital agenda. The organization will also boost pre-investment funds for studies and projects.

Strengthen the voice of Latin America and the Caribbean in large global forums

To achieve a Latin American position with a global impact, there is a need to deepen synergies with strategic allies such as the United States, Europe, China, and the Middle East, and integrate more into global decision-making forums. The region must have global solutions for climate change, migratory flows, digital transformation, and the energy transition.

For various historical reasons (most related to complex domestic situations and poor regional integration), Latin America and the Caribbean have played a secondary role on the international stage and have not been able to take advantage of its competitive advantages, the most notable of which are linked to its rich biodiversity (LAC hosts 60% of the planet’s terrestrial and marine life); its vast natural resources (49% of silver reserves and 44% of copper, for example); and its agricultural potential (Latin America and the Caribbean has 28% of arable land).

The promotion of EU investments in Latin America should help the region make its global solutions visible and better integrate into major decision-making forums to influence the significant challenges that face humankind more actively in the coming decades.

In conclusion, the significant EU investments in Latin America and the Caribbean, totaling approximately 45 billion euros, promise to usher in a new era of collaboration and mutual benefit. These investments not only strengthen economic ties between the European Union and the region but also address critical challenges such as poverty, inequality, and infrastructure gaps. By accelerating the green transition, digital transformation, and human development, the partnership aims to create sustainable solutions for the future. Moreover, the support for regional integration initiatives and the elevation of Latin America’s voice in global forums demonstrate a commitment to shared prosperity and a more active role in addressing pressing global issues. As the EU invests in Latin America and the Caribbean in various sectors, from renewable energy to healthcare, it contributes not only to the development of the region but also to the creation of a more interconnected and resilient global community. This collaborative effort reflects a vision for a prosperous, inclusive, and environmentally sustainable future for both the European Union and Latin America and the Caribbean.

 

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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