Foreign direct investment in Latin America rebounded by 56% in 2021

Investment flows to the region hit $134 billion last year, down from $88 billion in 2020. Only a few economies suffered further declines as a result of the COVID-19 pandemic.

© SL-Photography/Shutterstock | Mining worker in Potosi, Bolivia.

Foreign direct investment (FDI) in Latin America and the Caribbean rebounded from the crisis caused by the pandemic, increasing by 56% to reach $134 billion in 2021, according to the World Investment Report 2022 of the UNCTAD published on 9 June.

FDI flows to the region had fallen by 45% in 2020 – the steepest decline recorded in developing regions that year.

The rebound in 2021 was propelled by a record 317 new information and communications technology projects announced in the region – a jump of 61% from 2020.

“Growth has also been strong in traditional target industries, such as auto manufacturing, power, financial and insurance services, as well as mining,” said James Zhan, director of the investment division and UNCTAD companies.

Although FDI flows increased in all three sub-regions of Latin America and the Caribbean (excluding financial centres), a few national economies suffered further declines due to the lingering economic effects of the pandemic and , in some cases political instability.

South America saw its FDI increase by 74% to reach $88 billion

Rising global demand for raw materials and green minerals has helped spur strong FDI growth in South American economies.

According to the report, all major recipient countries, including Brazil, Chile and Colombia, saw increased FDI as investment began to return to the mining and energy sectors.

South America’s largest economy, Brazil, saw total FDI rise by 78% to $50 billion. Sectors that have benefited include agribusiness, automobile manufacturing, electronics, information technology and financial services.

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

One of the biggest greenfield projects was the launch of a $4.4 billion project by US-based Bravo Motor to manufacture electric vehicles, batteries and other components in Brazil.

Among the international project financings, the largest was the construction of an offshore wind farm for $5.9 billion, sponsored by Ocean Winds, an energy supplier based in Spain.

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

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

Colombia saw foreign investment increase by 26% to $9 billion, driven by inflows into manufacturing and transport, logistics and communication services. Meanwhile, flows to Argentina and Peru have returned to pre-pandemic levels.

Central American FDI inflows rebound 30% to $42 billion

Central America’s largest economy, Mexico, saw its FDI increase by just 13% to $32 billion, making it the second largest recipient in the subregion behind Brazil.

But announcements of greenfield investments in the country – an indicator of future investment plans – are up 43% from 2020.

The biggest jump was recorded in information and communication technologies. Chinese giant Huawei, for example, has announced that it will open a $4.5 billion cloud data center in Mexico.

FDI flows to Costa Rica have returned to pre-pandemic levels, nearly doubling to $3.2 billion with new investments in special economic zones.

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

FDI to the Caribbean increased by 39% to $3.8 billion

The rebound in FDI in Caribbean economies was mainly driven by growth in investment flows to the Dominican Republic, the largest recipient of foreign investment in the subregion.

The island nation saw its FDI rise 21% to $3.1 billion. Flows increased in mining, financial services and special economic zones.

Main FDI trends by sector in the region

The Latin America and Caribbean region has seen an overall increase in cross-border mergers and acquisitions. While the number increased by 49% to 244 transactions, the total net sales value ($8 billion) was virtually unchanged from the previous year.

The services sector recorded the largest increase in net sales – 12% to $6.4 – mainly in the financial services and energy supply sectors.

Announced greenfield investments in the region increased by 16%, with most commitments going to the automotive, information and communication, and mining sectors.

The value of international project finance deals announced in the region doubled, surpassing pre-pandemic levels. These have been driven by large projects in transport infrastructure, particularly in Brazil, and in mining and renewable energy activities throughout the region.

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