Foreign direct investment in Latin America fell in 2020 to lowest level since 2010 -ECLAC

RIO DE JANEIRO, BRAZIL – The flow of foreign direct investment (FDI) in Latin America fell sharply in 2020, decreasing 34.7% compared to 2019, reaching US$105.48 billion. According to the Economic Commission for Latin America and the Caribbean (ECLAC), this is the lowest level since 2010.

The decline in the region was close to the 35% recorded globally during the Covid 19 pandemic. In Brazil, the decline in foreign direct investment in 2020 was 35.4 percent, ECLAC said. As the country receives the largest inflow of foreign investment in Latin America, the result eventually affected the total.

Direct investment in Latin America fell in 2020 to lowest level since 2010. (Photo internet reproduction)The severe crisis caused by the pandemic has only exacerbated the trend of declining foreign direct investment in the region that has been observed since 2013, ECLAC said in its report “Foreign Investment Right in Latin America and the Caribbean 2021,” released Thursday.

“All components of foreign direct investment have suffered from the impact of the pandemic in the region and have been affected by the stagnation of economic activity,” ECLAC Executive Secretary Alicia Bárcena said at the launch of the document.

For example, mergers and acquisitions, which had already declined in 2019, fell 21% last year to US$26 billion. This figure is slightly higher than in 2009, after the international financial crisis.

FDI increased in 2020 in only five Latin American and Caribbean countries: Bahamas, Barbados, Ecuador, Paraguay, and Mexico, which receives the second-highest foreign investment, after Brazil. The volume is down by US$56 billion compared to 2019.

The natural resources and manufacturing sectors were the hardest hit last year, with declines of 47% and 38%, respectively. On the other hand, renewable energy, such as green hydrogen, continues to be the segment that attracts the most interest from foreign investors.

Speaking about Brazil, Bárcena referred to the withdrawal of important automotive companies, such as Ford, and the closure of a Mercedes-Benz plant in São Paulo. “This also affects Argentina, which is also involved in this production chain,” she said.

According to the report, the U.S. has increased its share of foreign direct investment in the region from 27% to 37%. U.S. investment almost equaled the share held by Europe, whose share fell from 51% to 38%.

The increase in U.S. investment in Brazil was responsible for this result. On the other hand, the Netherlands and Luxembourg, the two Europeans with the most investments in the country, reduced their presence in 2019 and 2020. “This has led to a decrease in Europe’s weight as an investor,” Cepal said in the report.

Regarding China, Cepal said the country remains among the most important investors in Latin America and the Caribbean for mergers and acquisitions. In 2020, Chinese projects accounted for the highest value of projects in the region. The share of Chinese companies in total mergers and acquisitions increased from 1.7% between 2005 and 2009 to 16.3% between 2015 and 2019.

In 2021, ECLAC estimates that FDI in Latin America will increase by no more than 5%, lower than forecasts for the world, which range between 10% and 15%. There was a recovery between September and February 2021, but it has seen a renewed decline in announcements since then.

Source: Valor