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Foreign Direct Investment Rises by 54% in the First Half of 2011 in the Region

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25 October 2011|Press Release

Despite positive projections, the global financial volatility generates uncertainty regarding the region's economic performance.

(25 October 2011) During the first semester of 2011, foreign direct investment (FDI) in Latin America and the Caribbean showed significant growth, maintaining the trend observed since 2010, stated the Economic Commission for Latin America and the Caribbean (ECLAC) today in Santiago, Chile.

According to the Organization, FDI flows to 18 economies in the region increased by 54% during the first half of 2011 compared with the same period in 2010. However, the region has shown a significant drop in its foreign investments, which posted a negative balance during the first half of the year.

ECLAC estimates that by the end of 2011, FDI inflows will grow significantly, which could mean a new historical record, confirming the projections made in May.

"The current flows of investment confirm the good performance of Latin American and Caribbean economies, despite the economic turbulence. As for FDI, our message to the countries has been -and now I reiterate it-to take advantage of these inflows for productive and innovative development policies," said the Executive Secretary of the Organization, Alicia Bárcena.

The increase in FDI inflows is due to the stability and economic growth in most of the countries and the high prices of raw materials, which continue to attract investment in mining and hydrocarbons, particularly in South America.

However, despite the good perspectives with regard to FDI, the sovereign debt crisis in Europe, the fiscal dilemma in the United States of America and the global financial volatility place certain uncertainty on the financing of transnational companies and their future investment plans, as well as the region's economic performance.

Brazil's performance has been particularly important in 2011 with FDI increasing to US$ 44 billion between January and August, which is 157% greater than the figure observed in 2010. This is due to new capital contributions and the steep rise in loans between companies.

During the crisis of 2008-2009, many subsidiaries of transnational companies gave back loans to parent organizations, however, this trend has reversed over the past year.

Colombia received investments worth almost US$ 7 billion, 91% higher than during the first half of 2010 and even higher than the total investment in 2010. The investments have been primarily concentrated in hydrocarbons and mining sectors. 

FDI in Venezuela posted a positive balance again of US$ 1.184 billion. However, Argentina, Chile, Mexico and Paraguay show a moderate decline in FDI inflows.

In Central America, all the countries recorded significant growth, with Costa Rica and Panama being the main FDI recipients in the subregion. The Dominican Republic, the main recipient in the Caribbean, increased its FDI inflows by 30%, which were in the mining sector in particular.

However, Latin American companies which invest abroad -known as the trans-Latins- declined abruptly during the first months of 2011. This is primarily due to the situation in Brazil, which posted a negative balance of US$ 10.8 billion.

This situation, far from meaning abandoning operations in other countries, indicates that Brazilian companies have reduced their investment activity in 2011 and they are taking advantage of business opportunities in the domestic market and protecting themselves from the uncertainty of the current global situation. Brazilian trans-Latins have experienced a strong inflow of capital from subsidiary companies located abroad to their parent companies.

Mexico, the largest investor in the region in 2010, invested around US$ 1 billion during the first half of the year, which is only about 10% of those made during the same period in 2010. Foreign investments made by Chilean trans-Latins fell by 30%.

Of the principal investing countries, only Colombia continues activity abroad. In 2011, Colombian companies are showing activity particularly in electricity, water and gas services and in financial services.

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Any queries should be addressed to the ECLAC Public Information and Web Services Section. E-mail: dpisantiago@cepal.org; Telephone: (56 2) 210 2040.

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