2022 Sees 55.2% Surge in Foreign Direct Investment in Latin America and the Caribbean

In 2022, Latin America and the Caribbean experienced a surge in Foreign Direct Investment (FDI), reaching a record-breaking $224.579 billion. This represents a remarkable 55.2% increase compared to 2021 and marks the highest FDI inflow since 2013. This significant growth was primarily driven by increased investment in Brazil, a key player in the regional economy, alongside growth in all components of FDI, particularly earnings reinvestment. Additionally, the services sector witnessed a substantial rise in FDI, reflecting the post-pandemic economic recovery. However, the sustainability of this elevated FDI level in 2023 remains uncertain, given the evolving global economic landscape. The FDI inflows represented 4.0% of the regional GDP, underscoring the significance of these investments for the region’s economic performance.

The robust FDI inflow presents both opportunities and challenges for Latin America and the Caribbean. While attracting and retaining FDI is crucial for driving sustainable and inclusive productive development, the evolving global landscape, including the reconfiguration of global value chains and geographic shifts in production, necessitates a strategic approach. The region must not only focus on attracting investments but also on maximizing their developmental impact. This requires implementing post-establishment productive development policies that foster productive linkages, facilitate value addition and upgrading within global value chains, enhance human resource development, improve infrastructure and logistics, and build local capacities. These multifaceted efforts are essential to fully leverage FDI for the region’s long-term economic growth and social progress.

The global FDI landscape in 2022 displayed varying trends. While Latin America and the Caribbean, along with other regions, experienced growth, FDI declined in the United States and some European Union countries. The overall global FDI inflow decreased by 12% compared to 2021, totaling $1.29 trillion. Within Latin America and the Caribbean, almost all countries benefited from increased FDI. Brazil emerged as a leading recipient, attracting 41% of the regional total and becoming the fifth largest global FDI destination. Mexico, Chile, Colombia, Argentina, and Peru also secured significant FDI inflows, highlighting the diverse investment landscape within the region.

Within Central America, Costa Rica led in FDI reception. While Guatemala experienced a decline attributed to an unusually high value recorded in 2021, its inflows returned to historical averages. The Caribbean also witnessed a positive shift in FDI, largely driven by increased investment in the Dominican Republic, which ranked second only to Guyana in FDI reception. Analyzing sectoral distribution, the services sector accounted for 54% of the total FDI, indicating its growing importance in the regional economy. Manufacturing and natural resource sectors also experienced a rebound, contributing to the overall increase in FDI inflows. Within services, financial services, electricity, natural gas and water, information and communications, and transportation-related services attracted the most significant investments.

The United States and the European Union remain the primary investors in Latin America and the Caribbean, accounting for 38% and 17% of total FDI, respectively. Notably, intra-regional FDI from countries within Latin America and the Caribbean also demonstrated significant growth, increasing from 9% to 14% of the total. This trend underlines the increasing economic interconnectedness within the region. Furthermore, outward FDI from Latin American transnational companies (translatinas) reached an all-time high of $74.677 billion, demonstrating the growing global presence of these companies. The surge in FDI project announcements, totaling nearly $100 billion, also reflects positive investor sentiment towards the region.

The energy sector holds significant potential for attracting FDI and driving economic growth in Latin America and the Caribbean. The report highlights the region’s potential to become a major player in renewable energy production, given its existing renewable energy capacity, which exceeds the global average, and its relatively clean energy matrix. Increased investment in renewable energy could transform the region into a hub for the production of goods currently manufactured in countries with less clean energy sources. FDI is crucial in facilitating technology transfer and promoting the adoption of emerging technologies, thereby accelerating the energy transition. Governments play a key role in coordinating strategies for a successful energy transition, promoting investments in renewable energy sources, and managing the phase-out of non-renewable energy activities while minimizing economic and social costs. While the transition to renewable energy is essential, the report acknowledges the continued importance of the non-renewable energy sector for some countries in the region, particularly for generating revenue and ensuring energy security. In addition to the energy sector, the report emphasizes the need for improved policies to attract investment and stronger institutional capacities in this area. Aligning FDI attraction efforts with national and territorial productive development strategies is crucial for leveraging FDI as a strategic tool for sustainable development.