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Uruguay received some US$ 1,403 million last year of net Foreign Direct Investment (FDI), which meant a significant increase compared to the previous year when, according to data from the Central Bank (BCU), the country had received an investment flow of US$ 545.6 million. The data comes from a report prepared by the investment, export and country image promotion agency, Uruguay XXI, published yesterday.
the flows of IED they are divided into three modalities: capital contributions, reinvestment of profits and loans between related companies.
According to the figures for 2021, capital contributions were positive throughout the year, totaling US$807 million. While the reinvestment of profits registered a total of US$ 2,565 million “a peak that had not been observed in the last decade”, according to Uruguay XXI. Said figure implied a “strong rebound” compared to the 2020 records when the values had been negative by US$285 million.
“Reinvestments constitute the component of FDI that most quickly reflected the effects of the pandemic, to the extent that the activity of companies was reduced by confinement, generating a direct impact on their profit margins,” the report said.
Meanwhile, the third modality, that of loans between related companies, registered negative values for US$ 1,968 million. “These loans make up the most volatile component of FDI, since they are made up of flows between subsidiary companies and their parent companies abroad,” indicated the Uruguay XXI document.
spain It ranked first in the ranking as the country that accumulated the most investment in Uruguay, with a share of 18% of the total. According to Uruguay XXI, Spanish companies have invested mainly in the industrial sector (basically wind energy projects) and global services (financial, business and fintech services).
However, from the promotion agency they pointed out that Spanish investments were also registered in other areas of the Uruguayan economy, such as in agribusiness businessfood and pharmaceutical industry.
The second country with the highest investment in Uruguay was Argentina, with a weight of 15% in the total FDI received. The investments made by the neighboring country were destined for agribusiness, the food industry and the pharmaceutical industry. However, from Uruguay XXI they highlighted that “in recent years, there has been a growing interest in Argentine capital flows in the corporate services sector.”
The third country that accumulated the most investment in Uruguay was Finland, this country represented 10% of the total investment, mainly due to the pulp mill business.
In fourth place was Brazil, with a weight of 9% in the total FDI received. According to the Uruguay XXI report, investments from this neighboring country were mainly destined for agribusiness businesses.
According to the Uruguay XXI report based on data from the BCU, the financial and insurance sector “was the one that attracted the most investment flows”, with a share of 41% of the total, followed by manufacturing industries with a weight 30% and trade with a representation of 15%.
Between 2020 and 2021, Uruguay captured more than 100 investment projects by foreign companies. In this sense, the Uruguay XXI report indicated that 75% of the investment announcements surveyed correspond to new investments, while the remaining 25% had to do with business mergers and acquisitions.
On the other hand, 60% of the announced investments correspond to activities in the trade and services hub sector, while 19% corresponds to industrial production activities and the remaining 21% corresponds to investments focused on serving the domestic market.
Uruguay to the world
According to the report of Uruguay XXIdirect investment flows from the country to the rest of the world totaled US$1,307 million last year, “and marked a recovery compared to the 2020 records.”
According to the document of the investment promotion agency, the increase in investment flows from Uruguay to the world was verified at the level of all the components of the IED. However, the agency warned that “it must be taken into account that Uruguay sometimes acts as a transit country for capital, for which the ultimate owner of the companies may be a resident in other locations.”
At the level of Latin America, the continent issued investments abroad for a total amount of US$40,766 million in 2021, which meant a “strong recovery” compared to the performance that the Latin American region had had in 2020.
The uncertain future due to the war in Ukraine
The war between Russia and Ukraine also creates an uncertain future for global FDI flows in 2022. Due to it, inflationary effects were amplified and the cost of food, fuel and raw materials increased. This generated a great imbalance between supply and demand, added to the difficulties caused by the pandemic. This led countries to adopt a more restrictive monetary policy, thus raising interest rates. Another problem is raised by the United Nations Conference on Trade and Development (Unctad), since it forecasts that world FDI flows in 2022 will have a downward trend (compared to 2021), remaining stable “in the best of cases”, indicates the Uruguay XXI report. In addition, the world economy will undergo changes in its projections. In the United States, forecasts and Federal Reserve estimates are continually being adjusted, pointing to growth of less than 2% in 2022 and 2023. On the other hand, China has slowed its economic activity due to an anti-COVID strategy. Although the health improvements are encouraging in the Asian country, there were no changes in the “COVID zero” policy. Political uncertainty will also affect investments in Latin America, since between 2022 and 2023 there are presidential elections in some of the main economies receiving FDI. This could cause a delay in investment decisions in these countries.