Slow growth and messy politics are largely to blame
Publicado en The Economist, el 2 de enero de 2025
Few economies performed as well as Spain’s in 2024. Latin America’s investment-promotion agencies might have been expecting an influx of euros from the Iberian peninsula, with the rising profits of Spanish firms spilling into Latin America as investors expand in markets that are culturally and linguistically familiar.
No such luck. Spanish investment into almost every country in Latin America plummeted in 2024, according to DataInvex, an arm of the Spanish trade ministry that tracks foreign direct investment (FDI). Some €2.2bn ($2.3bn) poured into Brazil from Spain in 2023, but in the first nine months of 2024 a measly €446m arrived. Spanish investment in Chile, often measured in billions, was worth just €235m in the same period.
Other countries which usually get hefty Spanish investment saw a similar trend, including Argentina, Chile and Uruguay. Mexico is the exception. Spanish investment broke €2.6bn in the first nine months of 2024, on track to double the 2023 total. Its potential as a non-Chinese manufacturing base from which to serve the market in the United States explains the surge.
Lourdes Casanova of Cornell University says Spain no longer views Latin America as a land of opportunity. The region’s growth has been disappointing. High inflation has suppressed disposable incomes. As Spanish firms mainly operate in Latin America’s service sectors, they are particularly sensitive to income trends. Depressed real wages, stubborn unemployment and persistent inequality do not inspire confidence in the region’s market potential. And even when firms make profits, most Latin American currencies are weak; so this money has less of an impact when calculated in euro-denominated company accounts in Spain.
Messy politics has not helped. Ties between Spain and Argentina have been strained since May, when Argentina’s president, Javier Milei, called the wife of Spain’s prime minister, Pedro Sánchez, “corrupt”. Spain withdrew its ambassador from Buenos Aires in response. The post was vacant for five months, before Spain grudgingly reinstated its ambassador in late October. Such spats do not necessarily curb investment, but they are not useful. In 2024, after 25 years of negotiations, a free-trade agreement between South America’s Mercosur trading bloc and the EU was at last signed by all parties. But the EU must still ratify it, and that is not a certainty.
If money were pouring into Latin America from other places, Spanish reticence would be less troubling. China has been an important source of FDI in the region, but this is aggravating relations with the United States. Donald Trump, its president-elect, will probably toughen the country’s stance towards Chinese investment in countries that then sell products on to the United States. Latin America risks getting caught in the crossfire. The new apathy of Spanish firms leaves the region particularly exposed.