Latin America’s FDI growth masks deeper investment decline
Foreign direct investment in Latin America and the Caribbean rose by only 1.7% in 2025, with 1,326 projects announced totaling $114.1 billion—a 34.3% decline from 2024. This modest growth conceals a more troubling trend: capital is increasingly concentrated in a limited number of high-value projects, while overall investment flows shrink. As a result, the region’s share of global fixed capital investment in FDI stood at just 14%, well below its potential.
The majority of announced capital is directed toward three sectors: energy transition, lithium extraction, and data center construction. These initiatives require substantial upfront investment but represent only a fraction of the region’s broader economic activity. Mexico alone attracted $34.3 billion in nearshoring-related exports during the first half of 2025, but progress elsewhere remains inconsistent. Eric Molino Ferrer, managing partner of EMF Consulting, describes the decline as a sign of further challenges ahead. The $114.1 billion in announced projects for 2025 represents a sharp drop from the previous year.
Reinvested earnings now account for 51% of total FDI, but this will not be sufficient to offset the decline. “The pipeline of future projects is contracting sharply. A one-third drop in the announced value serves as a leading indicator that will manifest in the flows for 2027 and 2028, when the reinvestment of earnings will no longer suffice to offset the decline,” Ferrer states. Corporations are prioritizing existing operations over new ventures. Capital contributions accounted for 34% of inflows, while intercompany loans made up 15%.
This shift toward proven returns over diversification signals deeper risks: if projects fail to advance, the region’s ability to secure future investment could weaken significantly. Financial analyst Daniel Suchar identifies structural barriers as the core issue. Bureaucratic delays, fragmented environmental approval processes, and gaps in logistics infrastructure are delaying projects even after funding is secured. While multilateral organizations frequently highlight the region’s advantages—critical minerals, geographic positioning, and undeveloped infrastructure—political instability and administrative inefficiencies undermine these strengths.
A striking example is Peru’s $1.3 billion Chancay port, completed in three-and-a-half years under China’s Belt and Road Initiative. This stands in contrast to Central America’s struggles. El Salvador is collaborating with Turkish port operator Yilport on a $1.62 billion port upgrade, while Honduras and Guatemala are pursuing a $20 billion interoceanic corridor. However, progress remains slow. The U.S. Trade and Development Agency is funding feasibility studies for a railway connecting Atlantic and Pacific ports, yet Guatemala has shown reluctance to engage with multilateral financing, instead relying on faster but less structured domestic or international debt markets.
Guatemala’s approach reflects a broader trend: the region is underutilizing multilateral banks like the Central American Development Bank (CABEI). Despite being Central America’s largest economy, Guatemala’s loans from CABEI now account for less than 10% of its total portfolio—a decline from 5% in 2023, according to former executive director Dante Mossi. The reason lies in the technical and operational safeguards imposed by development banks, which slow disbursement compared to private or sovereign debt markets.
Suchar warns that this missed opportunity extends beyond financing. Multilateral institutions offer preferential terms, extended repayment periods, and technical support—benefits that Guatemala and other nations are foregoing. “This situation reflects structural weaknesses in the State’s technical capacity to formulate and implement projects that meet the rigorous methodological standards required by these institutions,” Suchar notes. Without these safeguards, projects face higher execution risks, and investors grow increasingly cautious. The region’s ability to capitalize on nearshoring depends on overcoming these challenges.
CEPAL’s report calls for diversified exports, coordinated regional policies, and stronger public-private partnerships (PPPs), but implementation remains slow. Manufacturing, the sector most essential for capturing supply chain relocations, experienced a 17.2% drop in FDI in 2025. This shows that nearshoring does not benefit the region equally, nor will it by virtue of geographical proximity to the U.S. Ferrer advises businesses to view country risk not merely as a financial cost but as an operational threat.
For executives, institutional weaknesses are no longer a secondary concern; they represent a competitive disadvantage. “The region’s problem is not one of attraction; it is one of purpose,” Ferrer said. The question now is whether governments can act before the nearshoring opportunity fades. $78 billion in potential exports by 2025 hinges on progress, but the necessary infrastructure remains incomplete. CEPAL’s analysis reveals that the region’s failure to leverage nearshoring stems from disjointed administrative systems. While countries like Mexico have accelerated customs integration and digitized trade processes, others lag behind.
Guatemala’s customs agency, for instance, still relies on a mix of manual and digital systems, creating delays for manufacturers. Suchar highlights that even minor procedural inconsistencies, such as varying tax classifications across border regions, can discourage investors evaluating regional supply chains. The U.S. Trade and Development Agency has identified these gaps as a primary reason why potential investors in Central America’s interoceanic corridor have hesitated to move beyond feasibility studies. The push for digitalization extends beyond customs procedures.
Both Suchar and Ferrer emphasize the need for “one-stop” investment platforms, where businesses can submit permits, environmental approvals, and tax filings through a single online system. Costa Rica and Uruguay have made progress with such models, but adoption remains uneven. Guatemala’s 2025 economic reform package included provisions for a digital investment portal, yet implementation has stalled due to resistance from local bureaucracies. Without standardized processes, companies assessing the region’s nearshoring potential face unpredictable timelines, even for routine approvals. Ferrer warns that this inconsistency forces investors to treat administrative risk as a critical factor in project feasibility, often outweighing geographic advantages.
Latin America’s public-private partnership (PPP) frameworks exist in theory but rarely function in practice. CEPAL data shows that while 18 of 20 regional countries have PPP laws, fewer than 10% of these frameworks have resulted in completed infrastructure projects. Guatemala’s Interoceanic Corridor, for example, operates under a public-private concession model, but disputes over land rights and environmental assessments have delayed contracts for over a year. Suchar attributes this to weak enforcement: many PPP agreements lack binding arbitration clauses or clear penalties for regulatory delays.
The region’s PPP shortcomings extend to manufacturing. Ferrer cites El Salvador’s industrial zones as an example: despite tax incentives, companies report that PPP agreements for infrastructure upgrades, such as waste management or energy grids, are renegotiated annually, creating uncertainty. Without stable legal frameworks, even high-priority sectors like lithium processing face delays, as seen in Argentina’s Catamarca province, where a $2.1 billion lithium refinery has been stalled for two years due to unresolved PPP disputes over water rights.
Suchar argues that until governments establish enforceable PPP standards, the region will continue to lose ground to competitors like Morocco or Vietnam, which offer predictable contract terms for industrial investors. CEPAL’s report highlights a critical imbalance: while the region’s FDI is heavily concentrated in energy transition and lithium mining, these sectors risk widening inequality by neglecting industries with broader economic impact. The 17.2% decline in manufacturing FDI in 2025 reflects this disparity, as supply chain relocations favor nations with efficient production systems.
Brazil’s $8.7 billion semiconductor plant in Santa Catarina secured private investment only after the state government pre-approved 85% of regulatory permits in advance. In contrast, similar projects in Colombia or Ecuador have stalled due to unresolved labor laws or export tariff disputes, despite comparable infrastructure. The report also connects FDI trends to decarbonization pressures. Although lithium and renewable energy projects dominate headlines, CEPAL data shows that only 12% of announced FDI in 2025 includes mandatory sustainability clauses.
Guatemala’s Interoceanic Corridor, for instance, lacks carbon-offset requirements in its PPP contracts, putting it at odds with U.S. and EU procurement rules. Suchar warns that without aligned environmental standards, the region’s mega-projects may attract capital now but face retrofitting costs later. Of the $114.1 billion in announced investments for 2025, $28.5 billion is allocated to renewable energy, yet only $3.2 billion is designated for green infrastructure upgrades. Ferrer concludes that without targeted policy changes, the region’s investment boom will remain uneven and unsustainable, leaving vital sectors like manufacturing, and the millions of jobs they support, further behind.
