Concentration on mega-infrastructure projects masks a broader decline in foreign investments across the region.
This article appears in the October issue of Global Finance Magazine.
Foreign direct investment in Latin America and the Caribbean grew by just 1.7% in 2025, with the share of fixed capital at 14%. 1,326 projects were announced totaling $114.1 billion, a 34.3% drop compared with 2024. This is partly explained by investors prioritizing mega-infrastructure projects.
These include the transition to energy sustainability, lithium mining, and data center development. They require substantial capital but are concentrated in a limited number of projects. Historical obstacles could imperil the region’s nearshoring boom that could see upwards of $78 billion in exports with Mexico attracting $34.3 billion alone in the first half of 2025, according to a United Nations Economic Commission for Latin America and the Caribbean report.
“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,” said Eric Molino Ferrer, managing partner of EMF Consulting.
Reinvested earnings accounted for 51% of the total FDI inflows, followed by capital contributions (34%) and intercompany loans (15%). Transnational companies are preferring to inject resources into existing assets or large-scale projects with proven profitability, rather than diversifying risk across a range of new ventures.
Financial analyst Daniel Suchar argued that the gap between attracted capital and physical progress of projects does not imply an inability of the region to complete investments. Instead, it highlights structural bottlenecks in the execution phase. Multilaterals have repeatedly noted that the region remains attractive for investment due to its natural resources, including critical minerals and its geographic location. Delays to these projects are mainly caused by bureaucratic hurdles, fragmented environmental permitting processes, and a persistent gap in complementary logistics infrastructure.
“A symptom of bad governance and institutionality is administrative discontinuity: each government inherits projects that it cannot capitalize politically and lets them die,” Ferrer said.
Big Infrastructure Projects
The region is attempting to change this; Peru’s $1.3 billion Chancay port was completed in three-and-a-half years and is a shining example of China’s Belt and Road Initiative. Other countries have fared less well with this outreach, especially in Central America. The subregion is attempting to compete with the Panama Canal with its own port projects, connecting Atlantic and Pacific facilities.
These include the $1.62 billion joint venture with Turkish operators Yilport in El Salvador to upgrade national port infrastructure, and the $20 billion interoceanic project, which will see the U.S. Trade and Development Agency funding feasibility studies of a railway in Honduras and Guatemala’s ambitious Interoceanic Corridor.
Guatemala has been especially reluctant to use multilateral finance such as that available from the Central American Development Bank. Despite being a founding member and Central America’s largest economy, its loans are less than 10% of CABEI’s total portfolio. In 2023, the then-executive director of CABEI, Dante Mossi, put the figure at 5%. Instead, Guatemala focuses on local domestic borrowing or the international debt market. This offers greater disbursement speed and is free from technical conditions and operational safeguards of development banks.
“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 said.
Underutilizing multilateral banks is a significant opportunity cost for regional countries that forego not only financing on concessional terms and longer maturities but also technical assistance and rigorous supervision, risk mitigation and project management.
Nearshoring Lessons Need to Be Learned
With investors looking to Latin America and the Caribbean for its nearshoring solutions, recommendations in CEPAL’s report ring especially clear. Diversifying exports, true integrated regional policies, which could include anything from environmental licenses to customs integration, coordinated investment involving public and private stakeholders, and strengthening institutions would all improve FDI project execution.
“To accelerate and realize FDI implementation, regional governments must decisively move toward the digitalization and unification of administrative procedures through ‘single-window’ investment systems based on agile governance principles,” Suchar said.
Both experts argued for harmonizing regulatory frameworks across various jurisdictions and strengthening investment promotion agencies so they can adopt a proactive role in providing aftercare.
It is imperative to structure transparent, robust public-private partnership (PPP) frameworks that offer legal stability and mitigate regulatory risks during the construction phase. Many of Latin America’s countries have PPP laws, but in practice the number of completed PPP projects is in single digits.
No Problems Attracting FDI
Hundreds of billions of dollars of investment are potentially at risk and if the region wants to nurture an environment for foreign capital, it needs to overcome long-standing obstacles.
CEPAL warns that unless investment flows are deliberately channelled toward high-productivity and decarbonization sectors, the region risks perpetuating its historic productivity and inequality gaps, thereby squandering the window of opportunity presented by the reconfiguration of global supply chains.
In 2025, manufacturing was the only major sector in the region to see a decline in foreign investment—dropping by 17.2%—despite being the very sector that should be capturing the relocation of supply chains. This shows that nearshoring does not benefit the region equally, nor will it by virtue of geographical proximity to the U.S.
Ferrer advises CFOs to stop treating country risk merely as a premium added to the discount rate and instead model it as execution risk. For CEOs, the institutional agenda of their jurisdiction is no longer a matter of public relations but a component of competitive strategy. “The region’s problem is not one of attraction; it is one of purpose,” Ferrer said.
Nic Wirtz is a contributing writer based in Guatemala.
