All Central American countries recover foreign investment

Similar to what happened in the rest of the world, in 2021 foreign direct investment (FDI) inflows in the region recovered after the sharp drop registered the previous year, revealed a report published this week by the Economic Commission for Latin America and the Caribbean (ECLAC).

In a context of weak economic recovery, Latin America received US$142.794 billion in FDI in 2021, 40.7% more than in 2020, but this growth was not enough to reach pre-pandemic levels, the regional organization reported in the conclusions of its annual report Foreign Direct Investment in Latin America and the Caribbean 2022.

After a significant drop in the first year of the pandemic, in 2021 investment inflows to Central American countries recovered. As a whole, the subregion received FDI inflows that were equivalent to five times those received in 2020 and totaled US$10.794 billion, 7.6% of total inflows in Latin America and the Caribbean.

At the Central American level, Costa Rica ranked as the main recipient of the subregion for the second consecutive year; in Guatemala, a large acquisition in the telecommunications sector explained the considerable increase, and Panama managed to recover after the heavy blow to investments in 2020.

COUNTRIES WITH THE HIGHEST FDI GROWTH

The increase in FDI was transversal to all countries, and the three main recipients were Costa Rica (33% of the total for the subregion), Guatemala (32%) and Panama (13%), which accounted for 87% of the year-on-year increase.

FDI inflows in Costa Rica totaled US$3.563 billion in 2021, a figure that is 69% higher than that received in 2020 and that is above the average received during the last decade.

Similar to what happened in previous years, the most important component was the reinvestment of profits (53% of the total), with revenues that exceeded 69% of those received in 2020, while 25% of the revenues were received through through capital contributions, which showed the highest year-on-year growth (95%).

In 2021, Guatemala received FDI for US$3.472 billion, a figure that ECLAC described as “extraordinary” for a country where, on average, US$1.156 billion entered annually in the last decade. This value represents a growth of 273% compared to 2020.

The increase occurred in all components of FDI, but it was greater in the case of capital contributions, which came to represent 65% of inflows (while in the past decade their average share was 25%). The reinvestment of profits also increased (38%) and was the second component of FDI (33% of the total).

FDI inflows into Panama began to recover in 2021, although pre-pandemic levels have not yet been reached. Investments of US$ 1.350 billion were received, a figure 163% higher than that of 2020.

The behavior is explained by the inflows in the form of reinvestment of profits, which in 2021 reached US$1.938 billion, and which offset the capital outflow for loans between companies for US$638 million.

THE TREND IN THE REST OF THE REGION

During the past year, Nicaragua registered US$1.220 billion of FDI, 63% more than in 2020. This increase made it possible to exceed the levels of investment that the country received on average in the past decade and positioned it as the fourth recipient of the subregion, with 11% of total entries.

Reinvestment of profits is the main component (50% of the total), with inflows 29% higher than in 2020, while capital contributions represented 29% of the total, after an increase of 59%.

Meanwhile, Honduras received four times more foreign investment than in 2020; however, the recovery was not enough to reach the levels prior to the start of the pandemic. The total of US$876 million received in 2021 is equivalent to 76% of what the country received as an annual average in the 2010s.

The reinvestment of profits has been the main component of FDI entering the country for more than two decades and 2021 was no exception, according to reports from the Central Bank of Honduras (BCH).

In El Salvador, FDI inflows in 2021 were 11.7% higher than in 2020 and reached an amount of US$313 million. With this increase, the level of income remained below that registered before the pandemic.

Inflows from capital contributions and reinvestment of profits together registered a very significant increase, reaching a total of US$699 million in 2021. However, negative inflows from intercompany loans meant that the balance was lower.

With information from Bloomberg Línea

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