By: Staff Writer
July 16, 2021
COVID-19 slammed into Latin America and the Caribbean causing it to show the sharpest decline in foreign direct investment (FDI) inflows for 2020 at -45 percent compared to other regions, a United Nations (UN) report states.
The United Nations Conference on Trade and Development (UNCTAD) in its World Investment Report, 2021 highlighted some grim realities for the Caribbean and Central America in 2020 while forecasting a weak rebound for 2021.
The report said, FDI in Latin America and the Caribbean plummeted, falling by 45 percent to $88bn. “Many economies on the continent, among the worst affected by the pandemic, are dependent on investment in natural resources and tourism, both of which collapsed.”
This dramatic decline in FDI inflows was just slightly better than what was averaged at the height of the 2009 financial crisis, where the World Bank data states that FDI inflows declined by 34 percent from 2008 to 2009.
The report also said: “International investment in SDG-relevant sectors suffered important setbacks, especially in spending on energy, telecommunication and transport infrastructure. “
To put this in contrast, for the same period, Africa’s FDI inflows was at – 16 percent while on the other hand in Asian countries, FDI inflows increased by 4 percent in 2020.
For the Caribbean the agency said, “excluding offshore financial centres, flows declined by 36 percent following the collapse in tourism and the halt in investment in the travel and leisure industry. The contraction was mostly due to lower FDI ($2.6bn) in the Dominican Republic, the largest recipient in the subregion.
Also, flows to Haiti fell by 60 percent to $30m and to Trinidad and Tobago turned negative, to -$439m.
On the other hand, FDI inflows to Barbados grew by 22 percent to $262m and Grenada increased by 11 percent to $146m. Other Caribbean countries, such as Jamaica and St. Kitts & Nevis experienced contractions in FDI receipts of 45 percent and 47 percent respectively. However, despite the challenging global economic circumstances, The Bahamas experienced a 47 percent increase in FDI receipts from $611m in 2019 to $897m in 2020.
In Central America, the report noted that FDI inflows declined by 24 percent to $33bn, partly shored up by reinvested earnings in Mexico. “In Costa Rica, a sudden pause in investment in special economic zones (SEZs) was responsible for most of the 38 per cent decline in FDI inflows to $1.7 billion. As international trade in the region halted, flows to Panama shrank 86 percent to less than $1bn.”
Overall UNCTAD forecasts that investment inflows into the region will remain “stagnant” for the entire, 2021 with foreign investors targeting “lean energy and the minerals critical for that industry,” buoyed by a drive towards a “sustainable recover.”
They also cautioned on the political instability throughout the region further damaging prospects for a healthier rebound in the short to medium term.
“A substantial recovery of FDI to Africa and to Latin America and the Caribbean is unlikely in the near term. These regions have more structural weaknesses, less fiscal space and greater reliance on greenfield investment, which is expected to remain at a low level in 2021.”