Brazil leads record foreign direct investment in Latin America in 2022

Brazil received 41% of all foreign direct investment from Latin America throughout 2022, according to the report by the Economic Commission for Latin America and the Caribbean (ECLAC), released this Monday morning (10) in Santiago, Chile.

The region as a whole received US$ 224.5 billion (R$ 1 trillion) last year, an increase of 55.2% compared to 2021 and a record that had not been reached since 2013, when the amount reached US$ 200 ( BRL 973 billion).

According to ECLAC, foreign direct investments in Brazil also placed the country as the fifth largest global destination in the category, followed by Mexico (17%), Chile (9%), Colombia (8%), Argentina (7%) and Peru (5%).

Costa Rica was the main recipient of foreign direct investment in Central America, while in Guatemala these flows registered a significant drop due to an extraordinary value in 2021, but returned to their historical average.

José Manuel Salazar-Xirinachs, executive secretary of ECLAC, explains that, in addition to the investment record, there was also an increase in the weight of these flows in the regional GDP (Gross Domestic Product, sum of all goods and services produced), reaching 4% . However, it is not clear whether this good performance will be repeated in 2023, as the 2022 result was due to the post-pandemic economic recovery.

“The challenge of attracting and retaining foreign direct investment that effectively contributes to the sustainable and inclusive productive development of the region remains more relevant than ever. There are new opportunities in an era of reconfiguration of global value chains and geographic relocation of production in the face of changing globalization,” he said.

Also according to Salazar-Xirinachs, the challenge for the countries of Latin America and the Caribbean is “to maximize the contribution of foreign direct investment to development with policies for adding value and moving up the value chains, developing human resources, infrastructure and logistics and strengthening local capacities”.

Services sector leads investment, but industry also recovered

At the regional level, 54% of foreign direct investment was allocated to the services sector, although both manufacturing and natural resources industries recovered.

In terms of investors, the United States (38% of the total) and the European Union (17%, excluding the Netherlands and Luxembourg) were the main investors.

Along the same lines, direct foreign investment from countries in the same region of Latin America and the Caribbean jumped from 9% to 14% of the total.

In 2022, the amount invested abroad by Latin American transnational companies, known as translatinasreached historical levels: US$ 74.6 billion (R$ 363.1 billion), the highest value recorded since this series began to be compiled in the 1990s.

The amount of foreign direct investment project announcements in Latin America and the Caribbean grew 93% in 2022, totaling around US$ 100 billion (R$ 486.7 billion).

For the first time since 2010, the hydrocarbon sector (coal, oil and gas) led the announcements, with 24% of the total, followed by the automotive sector (13%) and renewable energies (11%).

Energy transition is the trend

The ECLAC study also identifies the energy transition as one of the sectors that can boost economic growth and, therefore, recommends that countries prioritize it in their economic agendas and transform it into an important engine of productive transformation in the region.

“Foreign direct investment can play a key role in accelerating the energy transition, facilitating technology transfer and enabling emerging technologies. Governments must take the lead in coordinating strategies for a successful energy transition in the region”, emphasizes ECLAC.

For the entity, one of the central roles of governments is to develop long-term policies that promote investments in renewable energy sources so that the transition is quick and safe and does not leave the region behind, “in a context where energy from clean sources It is a competitive factor”, he adds.

However, ECLAC also warns that this process must take into account the importance that the non-renewable energy sector still has for some countries in the region, especially in terms of generating income to meet social demands, productive development and energy security.