(27 May 2015) The flows of Foreign Direct Investment (FDI) into the Caribbean subregion shrank 4.7 % in 2014 to total $6.027 billion dollars, the Economic Commission for Latin America and the Caribbean said today in its annual report Foreign Direct Investment in Latin America and the Caribbean 2015, presented during a press conference at the organization’s headquarters in Santiago, Chile.
This nearly 5% decline in FDI directed towards Caribbean countries is less severe than the 16% drop registered in Latin America and the Caribbean as a whole, where flows fell to $158.803 billion dollars in 2014 from $189.951 billion dollars in 2013. Nevertheless, since 2008 FDI inflows into the Caribbean have fallen 37%.
The percentage of Foreign Direct Investment as a proportion of Gross Domestic Product (GDP) is relatively high in the Caribbean compared with other regions of the world, the study indicates. On average, these flows represent 4% of the subregion’s GDP, and more than 10% in some of its economies, while in the rest of Latin America that percentage is fewer than 3%.
This dependence, combined with the concentration in terms of the receiving sectors (tourism and increasingly natural resources) and the countries of origin (mainly Canada and the United States), means that Caribbean countries are highly vulnerable to variations in FDI flows, the document stresses.
ECLAC’s report analyzes the situation of 16 Member States in the Caribbean. Tourism is the sector that receives the most FDI in countries such as Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, Saint Kitts and Nevis, Saint Lucia and Saint Vincent and the Grenadines, while in other nations natural resources predominate (Guyana, Suriname and Trinidad and Tobago). In Haiti and Jamaica FDI is principally aimed at the transportation and telecommunications sector.
The Dominican Republic is the biggest economy and the top recipient of FDI in the subregion (21% of flows go to natural resources, 26% to manufacturing and 23% to tourism). In 2014 it received $2.209 billion dollars, up 11% from 2013 but still a far cry from the over $3 billion dollars tallied in 2012.
This country was followed by Trinidad and Tobago, which had inflows of $1.394 billion dollars in 2014 (down 30% from 2013), Jamaica, which registered $699 million dollars (an increase of 7%), and the Bahamas, with $374 million dollars (9% less than in 2013).
Barbados jumped from $5 million dollars in 2013 to $275 million dollars in 2014 and Guyana rose 19% (to $255 million dollars in 2014 from $214 million dollars in 2013), while Antigua and Barbuda received $167 million dollars (up 66% from 2013), Belize $141 million dollars (48% more), Saint Vincent and the Grenadines $139 million dollars (down 13%), and Saint Kitts and Nevis $120 million dollars (down 13%).
Countries that had inflows of below $100 million dollars in 2014 include Haiti ($99 million dollars, down 47% from 2013), Saint Lucia ($75 million dollars, down 21% from 2013), Grenada ($40 million dollars, 64% less than the previous year), Dominica ($36 million dollars, equivalent to a 36% increase), and Suriname ($4 million dollars, down 97%).
Meanwhile, Cuba updated in 2014 its legislation regarding foreign investment with the objective of improving the country’s allure in this area and giving greater protection to investors. Currently the biggest investments in that country are co-financed by the State, although improving diplomatic relations with the United States are being watched closely, along with other factors.
According to the study, the reason for the significant amounts of Foreign Direct Investment going into the Caribbean lies in the active promotion policies applied by countries in the subregion. These policies range from actions to improve the overall business climate to the use of financial measures to stimulate FDI inflows, such as exemptions on income tax and customs duties.
Upon analyzing the available evidence regarding the impact of these incentives, the organization recommends that Caribbean countries revise their usefulness, taking into account the high fiscal costs that these measures imply for their economies and the competition generated between countries in their bid to attract projects.
One aspect to take into consideration is the fact that, on average, the repatriation of profits derived from Foreign Direct Investment is equivalent to more than three-quarters of the FDI inflows into the Caribbean, especially in countries such as Barbados, Suriname and Trinidad and Tobago.
Currently, in the framework of the Caribbean Community (CARICOM), proposals have been made to align these benefits, which could be useful for taking full advantage of the potential of FDI, including the possibility of improving economies’ competitiveness, the text emphasizes.
In this sense, ECLAC encourages countries to advance towards a coordinated policy of FDI promotion, based on the concept that attracting bigger flows is less important than their impact on productive diversification and their convergence with long-term national development plans centered on equality of rights and environmental sustainability.