Similar to what happened in the rest of the world, in 2021 foreign direct investment (FDI) inflows to the region recovered after the sharp decline recorded last year, 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 $142.794 billion in FDI in 2021, 40.7% more than in 2020, but this increase was not enough to reach pre-pandemic levels, the regional organization reported in the report’s conclusions its annual. Foreign Direct Investment in Latin America and the Caribbean 2022.
After a significant decline in the first year of the pandemic, in 2021 the inflows of investments in Central American countries recovered. As a whole, the subregion received FDI inflows that were equivalent to five times those received in 2020 and amounted to $10.794 billion, 7.6% of total inflows in Latin America and the Caribbean.
At the Central American level, Costa Rica ranked as the subregion’s top recipient for the second consecutive year; in Guatemala, a major acquisition in the telecommunications sector explained the significant growth, and Panama managed to recover from the severe investment hit in 2020.
COUNTRIES WITH THE HIGHEST GROWTH OF FDI
FDI growth was cross-cutting for all countries, and the top three beneficiaries 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 in year.
FDI inflows to Costa Rica reached $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 exceeding 69% of those received in 2020, while 25% of revenues were realized through contributions capital. which showed the highest year-on-year growth (95%).
In 2021, Guatemala received $3.472 billion in FDI, a figure that ECLAC described as “remarkable” for a country where, on average, $1.156 billion came in annually in the last decade. This value represents an increase of 273% compared to 2020.
Growth has occurred in all components of FDI, but it is greater in the case of capital contributions, which represent 65% of inflows (while in the last decade their average weight was 25%). The reinvestment of profits also increased (38%) and was the second component of FDI (33% of the total).
FDI inflows to Panama began to recover in 2021, although pre-pandemic levels have not yet been reached. Investments of 1.350 billion dollars 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 1.938 billion dollars and which offset the outflow of capital for loans between companies for 638 million dollars.
TREND IN PART OF THE REGION
During the past year, Nicaragua recorded 1.220 billion dollars of FDI, 63% more than in 2020. This increase made it possible to exceed the investment levels that the country received on average in the last decade and positioned it as the fourth beneficiary 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 sufficient to reach pre-pandemic levels. The total of $876 million received in 2021 is equal to 76% of what the country received as an annual average in the 2010s.
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 income level remained below that registered before the pandemic.
Inflows from capital contributions and reinvestment of earnings together registered a very significant increase, reaching a total of $699 million in 2021. However, negative inflows from intercompany loans made the balance lower.
With information from Bloomberg Línea
