While the global economy continues to struggle and faces numerous challenges, there could be some good news in Latin America. According to a report from the Economic Commission for Latin America and the Caribbean (ECLAC), foreign direct investment (FDI) in Latin America and the Caribbean rose 55% in 2022 to $224 billion.
This is the highest value on record, and FDI coming into Latin America and the Caribbean has not exceeded $200 million since 2013. ECLAC also reports that this increased foreign investment in the region was during a time when "overall, global FDI inflows shrank by 12% versus 2021, totaling $1.29 trillion."
What countries are receiving the most foreign investment?
Brazil is leading the pack, with the report showing the country received 41% of the total foreign investment, ranking it as the number five location for global FDI. Following Brazil are Mexico (17%), Chile (9%), Colombia (8%), Argentina (7%), and Peru (5%).
What industries are attracting the most interest?
The services sector accounted for 54% of FDI coming into the region, with the manufacturing and natural resources sectors also rebounding. Other areas that captured the largest shares of investment included:
- Electricity
- Natural gas and water
- Information and communications
- Transportation-related services
Who is investing in Latin America and the Caribbean?
The United States represented the largest segment of foreign investors with 38% of total investments, followed by the European Union with 17%. Interestingly, FDI originating from countries within the region saw an impressive rise from 9% to 14%.
While we do not know what the future holds for this region, we do know it is ripe with opportunity. Latin American startups are making tremendous innovations and are tapping into the incredible number of unmet needs and gaps in services in the region. This report shows that foreign investors have certainly taken notice and that it is likely to continue moving forward.
A recent article in Americas Quarterly says it best, "Underlying all this is the idea that, at a time of rapidly shifting global trade and capital flows, Latin America has much of what the world needs: Strategic commodities, renewable energy sources, skilled workers close to the U.S. market, and more."
As startups and more established companies in the region continue their push forward, foreign investment will continue to follow as investors realize the region is ripe for change and growth and has the potential to be a leading area for innovation.
At Foley, we have experienced first-hand the increase in FDI in the region, especially in Brazil and Mexico, with larger economies and populations. Investors are also eager to take advantage of current market valuations for many assets after last year's beefy price correction.
On the flip side, working with foreign investors can be a strategic move for Latin American startups seeking to grow and expand globally; however, it is essential to approach these relationships with careful planning. Founders must conduct thorough due diligence and have strong legal and financial guidance to ensure that both parties benefit from a business relationship and potential risks are managed effectively.
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