By: Staff Writer
August 20, 2021
Chinese foreign direct investment (FDI) was the only saving grace for the Caribbean and Central America in an otherwise sluggish 2020, drowned in COVID-19 sorrows, says a recent United Nations Economic Commission for Latin America and the Caribbean (ECLAC) report.
ECLAC, in their “Foreign Direct Investment in Latin America and the Caribbean 2021,” report said that 2020 was a soft year for FDI for all countries in the Caribbean and Central America beside for two, Barbados and The Bahamas who performed better with FDI than all of the other countries amid this COVID-19 pandemic.
“The Bahamas is ranked third in the subregion in terms of FDI inflows and one of the two countries that received larger inflows in 2020, despite the COVID-19 crisis and the 14.5 percent contraction of its economy. FDI inflows to the Bahamas grew to about US$ 897m, 46.8 percent more than the previous year’s US$ 611m. Nonetheless, inflows in 2020 were still less than 70 percent of the annual average for the 2010–2019 decade. Moreover, the COVID-19 pandemic has had a major impact, since tourism is the country’s leading economic sector and accounted for half of the country’s employment and 77 percent of its exports in 2019. Owing to the pandemic and the international health restrictions, tourist numbers and spending fell by 78 percent and 76 percent, respectively, in 2020; and this has also had detrimental spillover effects on other sectors, such as commerce.
“Barbados is the other country (along with the Bahamas) in which FDI increased in 2020, with inflows totalling US$ 262m —21.7 percent more than in 2019. Despite the international situation and its repercussions on tourism, which remains the country’s most important economic sector, equity inflows and reinvestments were maintained at 2019 levels, and intercompany lending increased by 35 percent. As is true of the other Caribbean countries, Barbados has a thriving services industry. This includes the expanding presence in the country of Centralis, a Luxembourg-based outsourced business service provider. Its new office will support the firm’s development and growth in the local market.”
The report also said, “In 2020 the coronavirus disease pandemic (COVID-19) weighed heavily on the investments of transnational corporations. FDI inflows into Latin America and the Caribbean amounted to US$ 105.480bn, some US$ 56bn less than in 2019. Thus, the lowest value in the last decade was recorded in 2020, and the year-on-year decline is comparable only to that of 2009, when inflows fell by 37.1 percent as a result of the global financial crisis.
Moreover, the effect of the pandemic on FDI was more severe than its effect on GDP, reflected in the FDI share of GDP that stood at a mere 2.5 percent in 2020, down from an average of 3.5 percent in the 2010s.”
The report continued, “This trend was generalized in the region, with only five countries receiving more foreign capital in 2020 than in 2019. These countries were the Bahamas and Barbados in the Caribbean, Ecuador and Paraguay in South America, and Mexico.
“In Central America, FDI inflows declined in all countries. The most notable case in this subregion was Panama: after a decade in which investment increased steadily, in 2020 it registered negative capital inflows in all components of FDI, with negative inflows in intercompany loans accounting for the largest share of the total figure. Inflows in the Caribbean decreased less than the regional average (-25.5 percent).”
The hardest hit sectors of the economy was the natural resources sector, falling by some 48 percent compared to 2019, followed by manufacturing with a decline of 38 percent.
There were 149 investment announcements for Central American countries in 2020, for a total value of US$ 3.745bn. These represented 14 percent of the number and 7 percent of the amount of investments announced for Latin America and the Caribbean as a whole. While announcements for Central America were down sharply on the previous year (-23 percent in number and -27 percent in value terms), the reductions are more moderate than in the region as a whole, where the number of announcements decreased by 45 percent and the value announced fell by 50 percent. In this scenario, sectors related to the health industry15 (especially medical devices) and to renewable energy stood out with increases in announced values of 68 percent and 5 percent, respectively
The People’s Republic of China is still playing a pivotal role in the region, as their FDI impact is the most significant and that China has continued to make progress towards consolidating its position as a global economic power.
The report also noted, “Outward FDI from China —including Hong Kong (Special Administrative Region (SAR) of China)— has been growing steadily, rising from 5.5 percent of total global outward FDI stock in 2000 to 11 percent in 2020. This has made the country the third largest source of FDI in the world after the European Union and the United States.
“Between 2005 and 2020, the Caribbean and Latin America region accounted for 8.9 percent of the total amount of mergers and acquisitions by companies from China and Hong Kong (SAR) and 8.1 percent of the amount of project announcements.”
It added: “The relative importance of China has been greater, mainly in terms of mergers and acquisitions. According to official balance-of-payments statistics for the countries of the region, a period of great dynamism began in 2010, when FDI inflows from China rose to more than US$ 1bn per year and reached a peak of close to US$ 3bn in 2011. With this rate of growth, China accounted for 1.6% of the region’s total FDI inflows in 2018, but that share was still low compared to traditional sources such as the European Union (50 percent) or the United States (22 percent).