Foreign direct investment (FDI) inflows in Latin America and the Caribbean declined 9.1% in 2015 compared with 2014, totaling $179.10 billion dollars, the lowest level since 2010, the Economic Commission for Latin America and the Caribbean (ECLAC) announced today at its headquarters in Santiago, Chile.
This outcome is due to lower investment in sectors linked to natural resources, mainly mining and hydrocarbons, and to the deceleration of economic growth, above all in Brazil, the United Nations organization indicates in its annual report Foreign Direct Investment in Latin America and the Caribbean 2016, released this Wednesday during a press conference.
For 2016, ECLAC estimates that FDI will remain below the levels reached in recent years, in line with countries’ economic prospects. It could decline as much as 8%, although it will continue to be an important factor in the region’s economies, so it is necessary to attract quality flows, the Commission says.
“In the current configuration of the global economy, foreign direct investment is destined to play a relevant role in national and regional development processes. With proactive and integrated policies, countries can take advantage of these flows to diversify their economies, boost innovation and the incorporation of technology, and respond to the challenges of the 2030 Agenda for Sustainable Development,” said Alicia Bárcena, ECLAC’s Executive Secretary.
The decline seen in 2015 in Latin America and the Caribbean contrasts with the dynamism observed at a global level, the document notes. Last year, global FDI flows expanded 36%, reaching an estimated total of $1.7 trillion dollars, driven by an intense wave of transnational mergers and acquisitions focused on developed countries and the United States in particular.
Despite the overall decline in the region, country figures varied. In Brazil, FDI shrank 23% to $75.075 billion dollars, although it continued to be the top recipient of these flows in the region (concentrating 42% of the total amount). In Mexico, the second-biggest recipient, inflows increased by 18%, reaching $30.285 billion dollars, one of the highest levels in seven years. The manufacturing sector, mainly the automotive industry, and telecommunications received the biggest investments in that country.
The decline in mineral prices negatively affected FDI income in Chile ($20.457 billion dollars) and Colombia ($12.108 billion dollars), which fell 8% and 26%, respectively. Upon analyzing the sectoral distribution of these flows, it can be seen, for example, that in Colombia the participation of primary sectors (which includes mining) dropped from 51% in 2010-2014 to 31% of the total in 2015.
In Argentina inflows expanded 130% to $11.655 billion dollars, which can be explained by the fact that in 2014 the nationalization of 51% of energy company YPF, carried out in 2012, was accounted for (which represented a divestment of nearly $6 billion dollars in 2014).
In Central America FDI income increased 6%, totaling $11.808 billion dollars. With 43% of the total, Panama continues to be the main recipient in the subregion; it is followed by Costa Rica (26%), Honduras (10%) and Guatemala (10%). Meanwhile, foreign direct investment in the Caribbean declined 17% to $5.975 billion dollars.
As far as medium- and long-term trends, the study highlights important changes in the projects announced between 2005 and 2015: the relevance of extractive sectors has declined, the automotive sector has shown a special dynamism, and the importance of telecommunications, renewable energy and retail commerce has increased.
“Investments in renewable energy and other environmental projects are the basis of ECLAC’s proposal for boosting the region’s development with an environmental ‘big push,’ to move towards a pattern of low-carbon production, energy and consumption,” Alicia Bárcena emphasized, in reference to the last institutional document Horizons 2030: Equality at the Centre of Sustainable Development, presented during the Commission’s thirty-sixth session held recently in Mexico, where this proposal is explained in detail.
In 2015 the United States was once again the main investor in the region (with 25.9% of FDI), followed by the Netherlands (15.9%) and Spain (11.8%).
At the same time, FDI outflows from the region declined substantially to $47.362 billion dollars in 2015, down 15% from the year before, which reflects the moderation of the expansion that companies known as “translatinas” had begun between 2007 and 2012. Based on these companies’ stock of investments, Brazil and Mexico are the countries with the most capital invested outside their borders. However, in 2015 Chile was the biggest investor abroad.
The publication devotes a chapter to analyzing the evolution of FDI in metallic mining, which had positive consequences in recent years in terms of exports and fiscal income, but which has not had the same results as far as productive diversification or the formation of value chains in countries.
The last section of the report, meanwhile, examines the importance of FDI as a driver of the accumulation of innovation capital.
“Although FDI’s direct contribution to gross fixed capital formation is small, transnational companies can play an important role in economic development to the extent that they contribute to the creation of innovation capital,” the document sustains. “The possibility of harnessing these benefits depends on the skill level of the labor force, the competitiveness of the local industry and its capacity to supply foreign firms, and the existence of an associated cluster.”
- Brief document. Foreign Direct Investment in Latin America and the Caribbean 2016.
- Tables. Inflows and outflows of foreign direct investment in Latin America and the Caribbean.
- Map: Latin America and the Caribbean (selected subregions and countries): FDI flows, 2014-2015.
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