Multilatinas break the investment ceiling abroad

The large transnational companies in Latin America - known as multilatinas - have emerged strongly from the difficult status period of the pandemic. After almost ten years of progressive reduction in the flow of foreign investment, in 2022 foreign direct investment from Latin American countries reached an all-time high, with an 80% increase over the previous year. The data still to be known for 2023 will indicate whether this is a rebound from the containment during the pandemic crisis or whether it consolidates an upward trend.

Latin America and the Caribbean were particularly hard hit by the Covid-19 health emergency. It was the world region with the highest incidence of death from the pandemic in relative terms and recorded a 7% decline in GDP, barely offset by a 7.3% growth in 2021. Contrary to what might have been anticipated in a complex global political and economic context, 2022 was a positive year for the Latin AmericanEconomics . The region experienced growth of 4.1%, higher than the global average. In addition, Foreign Direct Investment (FDI) from entrance in Latin America showed a significant rebound, reaching a record US$224.579 billion, 55.2% higher than that documented in 2021.

However, if there is one indicator that deserves special attention in the region, it is outward FDI. Latin American companies invested more abroad in 2022 than ever before, reaching unprecedented levels: US$74.677 billion. This amount represented an 80% increase over 2021, thus exceeding the amount invested that previous year by more than $30 billion. These operations are in addition to the investment stock of Latin American and Caribbean companies, which in 2021 was US$741 billion, according to UNCTAD's data .

This took place in a favorable domestic context, as the region was able to benefit from the collateral consequences of the conflict in Ukraine, mainly from the rise in commodity prices, generating additional income in countries exporting energy, metals and food. For their part, central banks were able to anticipate rising inflation in 2021. The rise in interest rates resulted in two positive trends: the strengthening of regional currencies (essential for the internationalization of companies) and the credibility of monetary policies.

However, without underestimating the levels achieved in outward FDI, these figures should be placed in the global context, as they represent less than 3% of global FDI flows. Moreover, only in the light of the investment made in 2023 will it be possible to determine whether we are in an upward cycle: forecasts of lower economic growth in Latin America for this year and 2024 - around 2.3% according to the IMF - do not point to any particular momentum.

Multilatinas: home country and subject of investment

The region has large companies with a widespread international presence, through subsidiaries and the holding of billions in assets abroad. business Thus, 11 of the 100 global companies (non-financial) with the greatest international presence have Latin American DNA: the mining company Vale and the food company JBS, from Brazil; the cement company Cemex, the bakery Bimbo and the telecommunications operator América Móvil, from Mexico; the Argentine technology company Globant; the Colombian energy company ISA; the Chilean wine company Viña Concha y Toro, from Chile, among others. Although the most prominent companies are present in many different countries, most of them concentrate their subsidiaries in the region (88% according to an IDB survey). survey IDB).

In addition, at a lower level, there is a large presence of companies with a growing international presence. Thus, there are currently 36 unicorns (companies with a value of 1 billion dollars) and more than 1,000 technology startups.

If the US$74,677 million invested abroad in 2022 by Multilatinas shows anything, it is that, despite the uncertainty in international markets, the Latin American business network is highly competitive, ambitious and continues to expand its global presence. It is worth noting that more than 80% of this investment corresponds to companies from Brazil, Mexico and Chile. Brazil led the investment issuance, with US$30,694 million and an increase of 90% over the previous year; investments from Mexico reached US$16,878 million, and those from Chile amounted to US$13,918 million, a reduction of 4% (Chile is the country in the region with the highest foreign investment in relation to its GDP).

In addition, mention should be made of the investment effort made by Uruguay, Argentina and Colombia, whose flows exceeded US$1 billion. However, Uruguay occasionally operates as a transit country, so FDI figures issued by this country should be viewed with caution.

Regarding the types of outward FDI, it should be noted that a large part of outward investment comes from the reinvestment of dividends, representing 56% of the total amount of FDI issued by the region. This figure is even more significant in Brazil, Mexico and Chile, accounting for 64% of outward FDI.

However, this investment modality does not open up exposure to new markets and technologies. On the other hand, the dynamism of greenfield projects should be emphasized in contrast to the drop in cross-border acquisitions. Thus, in 2022, the region experienced a 46% growth compared to 2021 in the amounts invested with the announcements of new projects. At the same time, the region experienced a remarkable decline in the number of M&A deals: 133 deals were registered, down 18% compared to 2021, representing the most leave of the last decade. Among the

Destination: the region, USA and Spain

As regards the place of arrival of investments, 65% of total investment is destined for the region itself. Multilatinas seek out neighboring countries, with similar business contexts and consumption habits, in an initial phase of internationalization. This data evidences the important integrating role of outward FDI in Latin America and the Caribbean, surpassing the levels of commercial integration. Thus, in the period from 2018 to 2021, FDI constituted 67.9% of its total intraregional FDI, being a percentage clearly higher than that of intraregional trade, standing at levels below 15%. Thus, it is imperative for Latin American regional integration that these FDI data evolve positively in the future.

That said, the top non-Latin American FDI destination is the United States (mainly from Mexico), followed by the European Union, led by Spain. Multilatinas bet in 2022 more than ever on Spain (a country that in turn has recovered the investment tone in Latin America), with figures of up to 68,361 million euros, making the region the fourth most relevant investor in this country.

Finally, as regards the sectoral destination of investments, traditional industries (manufacturing, communications, financial services and consumer products) attracted the most money, although there is growing interest in sectors at the top of the value chain, mainly new technologies (software and telecommunications). Forecasts for the coming years indicate that Latin American investments abroad are likely to continue to grow. Thus, companies are becoming more aware of the benefits associated with internationalization processes. In addition, business prudence calls for risk diversification by investing abroad to mitigate negative local economic cycles.

In conclusion, in 2022 Latin American outward FDI showed an unprecedented dynamism despite a complex global context, evidencing the ability of Multilatinas to compete in an international environment. Outbound investment was led by Brazil, Mexico and Chile and was mainly destined for the region itself, demonstrating the important integrating role of outward FDI in Latin America.