COVID Causes Latin America's Worst Drop in Foreign Investment

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The UN Conference on Trade and Development (UNCTAD) annual study, which updates data from the beginning of the year, indicates that Latin America received 88 billion dollars in foreign direct investments, far from the 160 billion in 2019.

In contrast, the flow of investments in Africa fell by 16 %; in Asia, it even rose (by 4 %), and on average, in developing economies, the fall was around 8 %.

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“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 worldwide,” analyzed UNCTAD’s director of investment and enterprise, James Zhan.

In Brazil, investment inflows fell by 62%, to a total of 25 billion dollars, affected by lower capital inflows in oil and gas extraction, energy supply, and financial services.

Particularly dramatic was the case of Peru, where one of the world’s worst economic recessions, combined with political instability, caused investment to plummet. From $8 billion in 2019, it fell to $982 million in 2020.

In Central America, the decline was somewhat less, only 24 %, due mainly to the situation in Mexico, where because of reinvested earnings, foreign investment only fell by 15 %, to total $29 billion last year.

By 2021, UNCTAD expects investment flows to and from Latin America to remain low and predicts that they will not recover to pre-pandemic levels until 2023, a year later than predicted by global forecasts.

“Foreign investors (in Latin America) will focus on clean energy and critical minerals, driven by new global progress towards sustainable recovery,” the UN report predicts.

Globally, foreign direct investment, which amounted to $1 trillion (a third less than the $1.5 trillion in 2019), fell most sharply in developed countries (58%), especially in Europe (80%). However, recovery is also expected to be faster in those economies.

UNCTAD estimates that foreign investment will still be 25 % lower for this year than in 2019, the last year before the pandemic.

It also stresses that growth prospects in 2021 and 2022 are still surrounded by uncertainty, as they will depend on factors such as possible relapses of the pandemic, the potential impact of state economic recovery plans on investment, or political pressures.

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