Foreign direct investment to Latin America falls to levels of a decade ago due to the pandemic

Cathodes produced with copper extracted from Codelco's Gabriela Mistral mine, in the Antofagasta region, in northern Chile.

Foreign direct investment to Latin America and the Caribbean in 2020 was the lowest in more than a decade, derived from the economic crisis generated by the covid-19 pandemic, the Economic Commission for Latin America and the Caribbean reported on Thursday ( Cepal). The region received 105,480 million dollars, estimated the multilateral, a drop of 34.7% compared to 2019. The figure represents a drop of 52% from the historical maximum reached in 2012.

For Latin American countries to regain their appeal to transnational companies, they must increase public investment, said Alicia Bárcena, the executive secretary of the Chilean-based organization.

The rise in international prices of raw materials, such as copper and agricultural products, could serve as a bad incentive that, in the long run, does not provide Latin America with employment and sustained economic growth.

The fall for the Latin American region is in line with what is seen worldwide.

In 2020, the contraction of foreign direct investment, which is characterized by having business and not just financial purposes, was 35% worldwide.

"This is the lowest level that we have been able to observe since 1998," Bárcena said in a virtual press conference from Santiago.

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During the first year of the pandemic, transnational companies focused on strengthening their value chains so that they could prevent future disruptions such as those caused by landfills.

This resulted in a reduction in investment for most countries in Latin America, except for Mexico, Paraguay, Ecuador and the Caribbean islands of Barbados and the Bahamas.

In general, the trend in 2020 was to invest in developed countries.

Mexico, emphasized Bárcena, showed a positive behavior with an increase of 6.6% between 2019 and 2020.

"Mexico has managed to attract a significant amount of foreign investment"; says the annual report

Foreign Direct Investment in Latin America and the Caribbean 2021

, published on Thursday. "In these results, a very important factor has been the ratification of the Treaty between the United Mexican States, the United States of America and Canada," he adds.

All components of foreign direct investment suffered the impact of the pandemic, said the secretary. "Affected by the closure of activities, it is very difficult for foreign direct investment to become an engine for recovery if we do not do things soon," said Bárcena. “The investments of the transnationals were reduced and a tendency of the investors to go to the developed countries is deepening. And because? Because developed countries have sent very clear signals of public investments that are going to go to strategic sectors such as infrastructure, energy or environmental sustainability ”.

The economic recovery in Latin America will be partial, said ECLAC.

It is estimated that the gross domestic product (GDP) will recover 5.2% and in 2022 and 2.9%.

"This is not going to be enough to recover investment or employment levels," Bárcena said.

"Investment, the total, is what has fallen the most in our region."

"We are concerned that the increase in prices of raw materials and demand in 2021 are encouraging the reprimarization of our economies, and, we already know, that this model does not guarantee sustained growth, higher productivity or more jobs and exacerbates environmental deterioration. ”He added.

“What does the region have to do to face a profound transformation process?

Specify strategic recovery and investment plans associated with dynamic sectors towards a great environmental boost.

If we don't, foreign direct investment will go to Europe, North America and some Asian countries, ”he added.

Bárcena called for the creation of a multilateral regulatory framework that protects those investments that contribute to development, such as the negotiations that are currently being carried out in the World Trade Organization.

"Our region has focused more on protecting investors whatever happens, it doesn't matter if they deteriorate employment or the environment, that they bring in capital, well, no, it's not there."

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