Foreign Direct Investment (FDI) plays a significant role within developing and emerging economies. In Latin America, countries have relied on FDI to reduce social inequality and to increase productivity and competitiveness in a globalized economy while transferring technology and adopting new business practices. Yet over the last decade or so, many Latin American countries have felt the strain of economic contraction, causing uncertainty in the region. However, several countries in the region have in the last few years begun to see a reversal of this trend.
Reports from 2017 note that, despite gradual economic recovery, a number of factors have caused Latin America to experience a slowdown in FDI inflows as a whole. At its peak, FDI inflows within the region reached upwards of 16% (2011). As recently as 2016, however, FDI has dropped to 7.8%. This decrease, representing roughly USD 167.18 billion, is the result of sluggish economic growth, restricted interest of market-seeking capital, reduction in commodity prices, and a significant portion of FDI inflows moving towards developed economies supporting the digital economy.
Economic activity in Latin America has been less than stable over the past few years, but the region has gradually recovered and is steadily getting back on track towards recovery as a whole. As a result, many international companies are seeking opportunities to invest or strategically engage within the region.
This recovery has been the result of Brazil and Argentina—major economic players in the region—emerging out of recession and political instabilities that led their economies to stagger. Recovery has also been triggered by external support resulting from low volatility within the global financial market, sustained capital inflows, and improved partner demand.
Another economy to keep an eye on during 2018 is Peru. Changes in foreign investment policy, including developing a legal framework that reduces government interference in economic investor activities and protects the economic stability of investors, are increasing investor and consumer trust in the country’s economy. Peru is gradually turning itself into one of the more open countries in the region through reform, in line with its 2018 ease of doing business ranking of 58th.
With Latin American experiencing steady economic growth, many organizations, businesses, and investors are making efforts to expand and establish themselves in the region. If you’re considering a global expansion into Latin America, reach out to Velocity Global today to learn more about how we can assist you with your expansion efforts.