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ECLAC and UNCTAD Discuss Prospects for Regional Investment and Highlight the Strategic Role of Agencies to Promote Economic Reactivation

ECLAC and UNCTAD Discuss Prospects for Regional Investment and Highlight the Strategic Role of Agencies to Promote Economic Reactivation

*An original article released by ECLAC in Spanish:

  • Institutions organized a virtual meeting to present the "2020 Report on Investments in the World: International Production Beyond the Pandemic.
  • CINDE and Invest Chile participated in the discussion.
  • Regarding opportunities for economic reactivation, the meeting raised challenges related to a new industrial revolution and sustainability.
Representatives of the Economic Commission for Latin America and the Caribbean ( ECLAC) and the United Nations Conference on Trade and Development ( UNCTAD) presented the primary results of the annual report on foreign direct investment (FDI), prepared by UNCTAD, in a virtual discussion organized jointly by both organizations, CINDE and Invest Chile.

The meeting promoted dialogue with the region’s investment promotion agencies, about how the new international landscape can affect efforts in Latin America and the Caribbean to attract FDI in support of sustainable development, capacities building, and the achievement of 2030 Agenda goals.

ECLAC emphasized the idea that foreign investment plays a very important role in the context of the world today, making it essential to understand the reflections necessary to channel quality investments that work toward the Sustainable Development Goals (SDGs) of the 2030 Agenda.

In this regard, the Commission stated that it is particularly important to analyze investment prospects over the next several years and to examine global trends and prospects with a focus on Latin America, in order to determine which industries and sectors could be most affected by the recession.

The 2020 World Investment Report showed that in 2019, global FDI flows increased “modestly.” FDI inflows increased by 3%, this representing the lowest average in the last 10 years and 25% lower than the peak reached in 2015. Meanwhile, for 2020 it is forecast that world FDI flows could decrease to 40%, from US$1.5 trillion, which would put it below $1 trillion for the first time since 2005. Global flows will be under severe pressure this year – a result of various factors caused by the COVID-19 pandemic. The region’s economies will be strongly affected by the decline in world demand.

"Outlook is uncertain until there is a solution to the health crisis; this results in uncertainty regarding the COVID situation in 2021, as it will depend on what happens and any policies that affect investment," said Amelia U. Santos-Paulino, Chief of the Investment Affairs Division of UNCTAD.

She also stressed that this year is the first time that the report presents a chapter focused on the SDGs, at the request of the General Assembly of the United Nations.

"This is important because we are in the final decade of evaluating progress, which has been slow and very little in terms of investment in the SDGs, especially in the social sphere," stressed the UNCTAD representative.

Regarding the work of investment promotion agencies in the region, Juan Araya Allende, Director of Invest Chile, concluded that, although a marked fall in investment is forecast, “trends also show that the situation varies between countries, which provides a more thorough analysis since, in some countries, FDI flows have increased.”

"This has determined a need to maintain active investments in various countries, which implies a greater commitment to investors who have made the decision to maintain projects in certain countries, despite the crisis," he said.

On this subject, Pilar Madrigal, of CINDE, the Investment Promotion Agency of Costa Rica, emphasized that, given the changes in transnational corporate strategies, in response to the health crisis, the region faces “an immediate opportunity to project ourselves as solutions that minimize our investors’ operating risks, thus keeping our region in the sights of a solid investment strategy.”

Both agencies agreed that there is no single solution to the region’s crisis. Interesting options emerge in some countries, in order to carefully analyze industries and their capacities, with a view to post-pandemic recovery, as the investment situation and its flows not only respond to the effects of COVID-19, but also to other factors, such as trade tensions between China and the United States. One such agency opportunity is found in strategic work with investors, the incorporation of new information technologies (digital platforms), and efforts in new FDI flows that arise during the crisis, with a view to economic recovery (job creation and new human capital).

Regarding opportunities for economic reactivation that guarantees a path out of the crisis, the meeting raised challenges related to a new industrial revolution and sustainability – a key element when analyzing investment flows. Increasingly, sustainability must constitute a central element for the establishment of new investments, both due to company objectives themselves and also to country regulations, as well as consumer requirements. In addition, it was concluded that agencies must maintain the capacity to adapt, flexibility, and a new perception of the changes and needs that this economic emergency necessitates.

In the medium term, experts agreed that the pandemic’s implications for FDI flows to the region will depend on the severity of economic retraction and its speed of recovery. UNCTAD asserted that developing economies will see a more significant decline, since they are more vulnerable to the current crisis and tend to be less diversified; many depend on extractive industries or industries inserted in global values chains now strongly affected by the crisis, which makes them more vulnerable.

"We know that things are changing on the international scene – for example, reorganizing production chains in different ways – so large companies seek to increase network resilience by relocating production processes and regionalizing the chains," concluded ECLAC, highlighting that "this is an interesting aspect for Latin America to carry out productive integration processes between countries."