The EU’s pledge to mobilise €45bn in investment into Latin America and the Caribbean comes amid an upswing in foreign direct investment (FDI) into the region, sparking hopes the programme can improve its stagnant productivity levels.

However the UN’s regional commission has warned that governments must do their “homework” to maximise spillover benefits from the “enormous” opportunity.

The European Commission’s recently released EU–LAC Global Gateway Investment Agenda identifies 130 types of projects scattered across the region in which it plans to inject €45bn by 2027. The roadmap targets the green transition, digitalisation, education and health, with projects including critical raw material value chains in Chile, a new metro line in Colombia and vaccine research in Panama. 

“This is an enormous opportunity for Latin America to increase [European] partnerships, and receive not just investment but also technology transfer and finance to transform these areas,” says José Manuel Salazar-Xirinachs, executive secretary of the UN’s Economic Commission for Latin America and the Caribbean (ECLAC). “These [sectors] are crucial in their potential to dynamise economic growth, create jobs and transform realities that need to be transformed.” 

The €45bn programme consists of funds and guarantees provided by the EU, its member states, development finance institutions and export credit agencies. It is being provided under the EU’s Global Gateway Agenda which it established in 2022 to narrow the global development and infrastructure gap increasing investment in Africa, the Middle East, Asia and Latin America.

Rekindling ties

The investment agenda, which was designed in consultation with the Community of Latin American and Caribbean states (CELAC), marks a rekindling of economic ties between the two blocs. The package was announced on July 17 at the EU–CELAC summit in Brussels — the first in eight years. The pair have now agreed to meet every two years, with the 2025 summit earmarked for Bogotá. 

The €45bn package adds further momentum to the region’s ongoing rebound in FDI. Data from fDi Markets shows that announced capital expenditure (capex) in 2022 hit $100.31bn, which is a 57.8% increase on the year prior and the third-highest volume over the past decade. The biggest gains have been made in Mexico, where a nearshoring boom saw announced capex last year hit $40.84bn, the highest amount since records began in 2003. But even after excluding the US neighbour, FDI data shows the rest of the region is following the same upward trajectory.

Further reading on Latin America:

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• Latam's lost decade of investment
• Latam weighs the cost of Chinese infrastructure

Homework to be done

However Mr Salazar-Xirinachs warns that increased FDI alone is not enough to address one of the region’s most entrenched economic problems: chronically low productivity levels. A 2022 report by the International Labour Organization found that region-wide labour productivity has been on a persisting downward trend compared with the rest of the world over the past 40 years. 

“The contribution of FDI to productivity growth is positive, but not large enough in itself to move the needle,” says Mr Salazar-Xirinachs. Indeed, an ECLAC report from two years ago found no evidence that FDI had contributed to significant changes in the region’s productive structure over the prior decade. 

The ECLAC works with governments to deploy productive development policies that cut the region’s digital divide, which according to the European Council on Foreign Relations is the highest in the world, expand research and development capacity, modernise agriculture and tackle other factors dragging down productivity levels.

The EU investment roadmap targets improvements in many of these areas, including internet access, renewable energy and gender imbalances. However Mr Salazar-Xirinachs says this alone does not guarantee sufficient spillover benefits: “To make the most of this investment agenda … there is homework that Latin America must do”.

He urged the region’s governments to define productive development policies — an area in which they have historically shown “volatility and lack of continuity” by forging stronger public–private cooperation, supporting the digitisation of business, spurring the green transition and strengthening health self-sufficiency.