Natural resources and manufacturing sectors being the worst hit.

The Economic Commission for Latin America and the Caribbean (ECLAC) is reporting a dramatic fall off in Foreign direct investment (FDI) in Latin America and the Caribbean, which is a cause for concern.

A new study released by ECLAC points to a 35% fall off  in 2020 with natural resources and manufacturing sectors being the hardest hit by the dwindling FDI inflows. The data showed that only five countries in the region saw an increase in foreign inflow.

These were The Bahamas and Barbados in the Caribbean, Ecuador, and Paraguay in South America. Thanks to its free trade agreement with the United States, Mexico turned out to be a major recipient of FDI inflows last year.

Natural resources, traditionally the biggest source of dollar money for the region, suffered a staggering 47% decline. However, the data from the study highlighted that FDI projects experienced a rebound between September 2020 and February 2021.

Fall off in FDI inflows since May

However, from that month to May 2021, it appears that a new drop occurred in the value of the announcements made. “In this scenario, it is difficult to imagine that FDI inflows into the region could increase by more than 5% in 2021,” ECLAC’s report stated.

The UN agency has urged governments in the region to promote renewable energy, electro-mobility, digital revolution, and the healthcare manufacturing industry, saying that these sectors spark the most interest among foreign investors.

US increasing its investments in the region

On the positive side, the United States was once again increasing its investment in the region.

American investments jumped from 27 % in 2019 to 37% in 2020.

In contrast, inflows from Europe declined from 51 % to 38 % during the same period. 

According to Alicia Bárcena, Executive Secretary of the UN agency over the past years, foreign investments made little changes to the region’s productive structure.

As such, she is urging the governments to invest more money in technology and innovation.