Foreign investment into Latin America gets cut by nearly half during pandemic

By June 22, 2021

Foreign direct investment into Latin America fell by 45 percent last year, according to a report released this week by the United Nations Conference on Trade and Development (UNCTAD). The World Investment Report 2021 showed the disproportionate impact that developing countries in Latin America had compared to countries around the world.

“The region suffered the sharpest FDI decline in developing countries,” said James Zhan, UNCTAD’s director of investment. “Latin American economies faced a collapse in export demand, falling commodity prices and the disappearance of tourism, leading to one of the worst contractions in economic activity across the world.”

Worldwide, foreign direct investment fell by one-third to $1 trillion, which is the lowest amount of foreign investment since 2005. In Latin America, the total amount of foreign investment was $87.6 billion.

Sectors particularly affected by this strain on foreign capital in Latin America were infrastructure projects, manufacturing and, of course, the tourism industry. The pause of global travel had drastic results for the region, which gets an estimated 10 percent of its total GDP from the arrival of foreign travelers. Mexico, for example, lost about $130 billion from its tourism sector in 2020. Revenue from travel fell by half in smaller countries like Costa Rica, whose economies are tied to the influx of tourists.

The report noted that exporters of minerals and precious metals suffered during the first part of the year but rebounded nicely before the end of 2020 as trade began to pick up again in Latin America.

Brazil was hit particularly hard by the lack of investments in oil and gas, in addition to losses in the broader energy sector. As a result, the country lost about two-thirds of its foreign investment in 2020, receiving its lowest amount in more than two decades.

“Most importantly, the pandemic had severe consequences for international investment in sustainable development goals-relevant sectors, with a contraction of infrastructure investment by over 75%,” Zhan said. “This adds to the region’s vulnerability and represents a major roadblock to achieving the sustainable development goals.”

Unfortunately, this comes as little surprise after the region suffered the worst economic contraction of any area in the developing world, as an estimated 8 percent of Latin America’s overall GDP was lost to the pandemic. Meanwhile, the region remains the global hotspot for COVID-19 with cases and deaths still happening at an alarmingly high rate.