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Foreign direct investment in Latin America has rebounded by 56% in recent years

by | Dec 27, 2022

Investment flows to Latin America reached 134 billion dollars last year.  This figure is compared to 88 billion dollars in 2020.

Foreign direct investment in Latin America and the Caribbean has recovered from the pandemic-induced slump it experienced and has grown 56% to reach a total of $134 billion in 2021.  This is demonstrated in data presented in the World Investment Report 2022 from UNCTAD, published on June 9.

FDI flows to the region plummeted by 45% in 2020.  This figure represents the largest decline recorded in developing regions that year.

The rebound in 2021 was fueled by a record number of 317 new foreign direct investment projects announced across the region, an increase of 61% compared to 2020.

James Zahn, director of UNCTAD’s Division of Investment and Enterprises, recently expressed that, “Growth was also strong in traditional industries such as manufacturing, electricity infrastructure development, and insurance and financial services.”

Although FDI flows increased in all three Latin American and Caribbean subregions (excluding financial centers), some national economies suffered further declines in investment due to the continuing economic effects of the coronavirus pandemic and, in some cases, political instability.

South America saw FDI grow by 74% to 88 billion dollars

Increased global demand for raw materials and green minerals helped fuel strong foreign direct investment in Latin America, especially in South American economies.

According to the report, the main recipient countries, including Brazil, Chile, and Colombia, saw FDI increase as investment returned to flow into the mining and energy sectors.

South America’s largest economy, Brazil, saw total foreign direct investment grow by 78% to $50 billion. Sectors that benefited from this influx of capital include automobile manufacturing, electronics, information technology, financial services, and agribusiness,

The value of FDI greenfield projects announced in the country increased by 35%, while the number of international project financing deals increased by 32%.

US-based Bravo Motor’s $4.4 billion project to make electric vehicles, batteries, and other components in Brazil.

Among the financing operations for international projects, the largest was the construction of an offshore wind farm for 5.9 billion dollars, sponsored by Ocean Winds, a Spain-based energy provider.

FDI flows to Chile increased by 32%, to 13 billion dollars, sustained by several large acquisitions and a renewed interest in mining projects.

The number of international project financing agreements in the country increased by 80%. One of the most important is the construction of a 3 billion dollar ammonia plant by a group of investors, including Copenhagen Infrastructure Partners (Denmark), Austria Energy Group, Oko Wind, and Erneuerbare Energieerzeugungs (Austria). The plant will have its own onshore wind farm, electrolyzers, and port facilities.

In Colombia, foreign investment grew by 26% to 9 billion dollars. This increase was driven by new entries in the manufacturing sector and in transportation, logistics, and communications services. Meanwhile, flows to Argentina and Peru have recovered to pre-pandemic levels.



FDI inflows in Mexico and Central America rebounded 30% to 42 billion dollars

The largest economy in the region, Mexico, recorded an increase in FDI of only 13%, to 32 billion dollars.  This made the country the second largest recipient in the subregion, behind Brazil.

However, the number of FDI greenfield projects announced in the country, an indicator of future investment plans, increased by 43% compared to 2020.

The greatest leap occurred in information and communication technologies. The Chinese giant Huawei, for example, announced that it would open a $4.5 billion cloud data center in Mexico.

With new investments in special economic zones, foreign direct investment to Costa Rica returned to pre-pandemic levels, nearly doubling to $3.2 billion.

In Guatemala, FDI reached a record level of 3.5 billion dollars.

FDI in the Caribbean increased by 39% to 3.8 billion dollars

The growth of external investment drove the rebound in FDI in the Caribbean economies. The Dominican Republic was the largest recipient of foreign direct investment to the region.

The island country saw its FDI increase by 21% to 3.1 billion dollars. Flows increased in mining, financial services, and special economic zones that contain manufacturing plants.

Main FDI trends by sector in the region

The Latin American and Caribbean region saw a general increase in cross-border mergers and acquisitions. Although the number increased by 49% to 244 operations, the total value of net sales (8 billion dollars) was practically unchanged from the previous year.

The services sector posted the largest increase in net sales, up 12%, to $6.4 billion, mainly in the financial and energy supply industries.

Announced regional investments increased by 16%, with most commitments going to the automotive, information and communication, and extractive industries.

The value of international project financing deals announced in the region doubled, exceeding pre-pandemic levels. Large transport infrastructure projects, especially in Brazil, and mining and renewable energy activities throughout the region were the biggest contributors to this rebound in levels of foreign direct investment.

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

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