Foreign Direct Investment in Latin America and the Caribbean Increased by 13.2% in 2018, Ending a Five-Year Downward Trend

In contrast to the global trend, flows of Foreign Direct Investment (FDI) to Latin America and the Caribbean increased by 13.2% in 2018 versus 2017, totaling $184.287 billion dollars and putting an end to five years of declines, although last year’s figure was still below the values recorded during the boom cycle for commodities prices, the Economic Commission for Latin America and the Caribbean (ECLAC) indicated today in Santiago, Chile.

“Upon analyzing the different components of FDI, it can be seen that the dynamism regained in 2018 was not based on the entry of capital contributions – which would be the most representative source of companies’ renewed interest in establishing themselves in the region’s countries – but instead on the growth in profit reinvestment and loans between companies,” states the document Foreign Direct Investment in Latin America and the Caribbean 2019, launched at a press conference this Wednesday by the United Nations regional organization’s Executive Secretary, Alicia Bárcena.

The study shows great heterogeneity in national trends: in 16 countries, inflows increased versus 2017, whereas in 15 other countries, they declined. Most of the growth in FDI in 2018 is due to greater investment in Brazil ($88.319 billion dollars, 48% of the regional total) and Mexico ($36.871 billion dollars, or 20% of the total).

In terms of amounts, they are followed by Argentina ($11.873 billion dollars, a 3.1% increase from 2017), Colombia ($11.352 billion dollars, an 18% decline), Panama ($6.578 billion dollars, a 36.3% increase) and Peru ($6.488 billion dollars, a 5.4% decline). Inflows to Chile ($6.082 billion dollars) grew slightly (3.9%), but, as in 2017, capital flows into the country were clearly below the average notched in the last decade.

“In an international context of a reduction in FDI flows and strong competition for investments, national policies should not be oriented towards returning to the sums recorded at the start of the decade, but rather towards attracting ever more FDI that contributes to forming knowledge-based capital and advancing towards sustainable patterns of production, energy and consumption,” Alicia Bárcena, ECLAC’s Executive Secretary, contended.

“The growing incorporation of a sustainable development approach in the strategic decisions of the world’s main transnational companies constitutes an opportunity for designing policies that accompany this paradigm shift,” the senior official underscored. The prospects for 2019 are not encouraging due to the international context: a decline of up to 5% in FDI inflows is forecast, according to the report.

In 2018, FDI in Central America grew 9.4% compared with 2017 due to the impetus of Panama. In the Caribbean, inflows shrank by 11.4% due to lower investment in the Dominican Republic ($2.535 billion dollars, -29%), which is the main receiver in that subregion.

Forty-seven percent (47%) of FDI inflows in 2018 corresponded to the manufacturing industry, 35% to services, and 17% to natural resources. Meanwhile, the largest cross-border merger and acquisition operations were concentrated in Chile and Brazil, in the mining, hydrocarbons and basic services (electricity and water) sectors.

With regard to the behavior of Latin American transnational companies, known as “traslatinas,” ECLAC’s document specifies that FDI outflows from Latin American countries declined in 2018 for a fourth straight year, totaling $37.870 billion dollars. Of the direct investment abroad coming from Latin America, 83% originated in Brazil, Chile, Colombia and Mexico.

The majority of capital that entered the region came from Europe (which has a bigger presence in the Southern Cone) and from the United States (the main investor in Mexico and Central America). China, meanwhile, had less participation in mergers and acquisitions in Latin America and the Caribbean, according to the report Foreign Direct Investment in Latin America and the Caribbean 2019.

The document also analyzes the contribution of transnational companies from the Republic of Korea to the region’s productive transformation, along with the advantages that quality FDI could have for the agro-food chain.

Latin America and the Caribbean was the destination for around 5% of all Korean investments in the 2007-2018 period. This Asian country, which mainly uses the modality of greenfield projects, has supported the development of high-value-added manufacturing in the region, especially in the automotive industry in Mexico and Brazil. The location of Korean companies in the region represents an opportunity to foster a more sophisticated productive fabric, as long as the policies for attracting and maintaining FDI are integrated into a national development project, ECLAC indicates.

Finally, the report notes that 7.9% of the FDI received by Latin America between 2012 and 2016 went to the agro-food chain, especially the agro-industrial sector, a percentage that rises to 15.5% in the case of Uruguay, 14.5% in Paraguay, 14.4% in Mexico and 11.9% in Argentina. “FDI can contribute to producing in regional agro-food chains the change needed to tackle the environmental and social challenges of the coming decades,” ECLAC concludes.