Latin America and the Caribbean Emerge With Strongest Growth in FDI in 2010

June 28, 2011
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In 2010, Latin America and the Caribbean was the region with the strongest percentage increases as a recipient and source of Foreign Direct Investment (FDI), according to the ‘Foreign Direct Investment in Latin America and the Caribbean 2010’ presented recently in Mexico City, Mexico, by the Economic Commission for Latin America and the Caribbean (ECLAC).

Last year, the region’s FDI inflows were 40% higher than in 2009, representing US$112.634 billion, while outgoing FDI almost quadrupled in the same period to reach a historic high of US$43.108 billion, which highlights the buoyancy of transnational Latin American and Caribbean enterprises, known as trans-Latins.

In a context of falling foreign investment in developed countries (-7%) and rising investment in developing countries (10%), Latin America and the Caribbean increased its share of the recipient market from 5% to 10% between 2007 and 2010.

For 2011, FDI flows to Latin America and the Caribbean are expected to maintain this trend and increase by between 15% and 25%, which could take them to unprecedented high levels, according to the projections of the report launched by the Executive Secretary of ECLAC, Alicia Bárcena, and the Mexican Minister of Finance and Public Credit, Ernesto Cordero.

“The figures we are presenting…point to the growing integration of Latin American and the Caribbean in the process of economic globalization. The region’s countries not only remain attractive to foreign investors, but they are also increasingly daring to conquer other markets by means of trans-Latins”, stated Ms. Bárcena.

Nevertheless, the senior official did emphasize that “in order to improve the capacity to absorb the benefits of such investment, we are stressing the need to implement productive development policies focused on innovation and on the strengthening of local capacities to promote the creation of quality employment. FDI must help the region to grow with equality”.

According to the report, the region’s main recipient was Brazil, where FDI inflows posted a record surge of 87%, going from US$25.949 billion in 2009 to US$48.462 billion in 2010.

The second main recipient was Mexico (US$17.726 billion ), followed by Chile (US$15.095 billion), Peru (US$7.328 billion), Colombia (US$6.760 billion) and Argentina (US$6.193 billion). In Central America, foreign investment flows to all countries grew, except in the case of El Salvador (-79%). In the Caribbean, inflows fell 18%. Mexico was the country that invested the most abroad in 2010 (US$12.694 billion). This was followed by Brazil (US$11.5 billion), Chile (US$8.744 billion) and Colombia (US$6.504 billion).

The factors that resulted in the increased FDI receipts in 2010 include the improved performance of developed economies and the buoyancy of certain emerging economies that boosted some sectors thanks to increased demand.

United States remains the main investor in the region and was responsible for 17% of the FDI received in 2010, followed by the Netherlands (13%), China (9%) and Canada and Spain (both 4%).

The thirteenth version of this ECLAC report highlights the emergence of the Asian giant, China. In 2010, Chinese companies invested almost US$15 billion in Latin American and Caribbean countries, fundamentally in the form of mergers and acquisitions.

Over 90% of confirmed Chinese investment in Latin America has targeted the extraction of natural resources. In the medium term, this country’s transnational enterprises are expected to continue to be active in the region and diversify into infrastructure and manufacturing sectors.

Alicia Barcena

Through its analysis of the sectors targeted by FDI, this United Nations Commission points out that the investment flows are reinforcing the region’s production pattern.

In South America, the main recipient sectors in 2010 were natural resources (43%) and services (30%). Compared with the period 2005-2009, a greater share of investment takes the form of primary sectors. In Mexico, Central America and the Caribbean, investment continues to target mainly manufactures (54%) and services (41%).

The share of Latin America and the Caribbean as a recipient of investment with high technology content remains small compared with other regions, although there has been an increase in the number of FDI projects in medium to high technology sectors and those associated with research and development.

The ECLAC publication also deals with FDI and export platforms in Central America, Panama and the Dominican Republic. According to ECLAC, transnational enterprises still wish to invest in Central American countries to generate export platforms, but the target sectors have changed from manufactures to services (especially tourism, property business and remote business services).

Lastly, the document reviews the main foreign investments and the business strategies observed in the regional telecommunications industry, where there is a convergence towards broadband, as well as the growing involvement of Latin America in the software industry, which has become a driver of economic growth.

 

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