Foreign direct investment in Latin America is set to be between 3% and 7% in 2013 with Europe and the United States the biggest investors, according to a new report. This comes on the back of a record 6.7% rise in FDI in 2012 which was astounding considering the global economic uncertainty, says the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). However, it points out that continued global economic uncertainty curtailing capital flows is the biggest threat to continued growth and that is why it has given such a broad ranging prediction for FDI this year.
Some countries are expected to attract more FDI, Brazil, for example, is regarded as a must for many countries in Europe in terms of investment and Mexico has strong historic ties with the United States. ‘The foreign direct investment results attest to the good current performance of the Latin American economy. However, we see no clear signs of FDI making a relevant contribution to generating new sectors or creating activities with a high technology content as changing the production structure is one of the main challenges facing the region,’ said ECLAC executive secretary Alicia Barcena.
FDI is increasingly directed at natural resources, the report points out. The region exports a wide range of commodities such as oil, soy and copper, which have been buoyed by a voracious appetite from China. Brazil received the most foreign direct investment in the region last year, with some 41% of flows to Latin America with Chile in second place and Colombia in third and overall the region accounted for roughly 12% of global foreign direct investment last year.
Quote from Gringos.com : “Economic growth in Ecuador came in at 8% in 2011 and even though this fell to around 5% in 2012, it is still significantly higher than many countries in Latin America. However, there still seems to be reluctance amongst the expat community and foreign investors to take the country seriously, why?”
The report also says that manufacturing represents a fairly low proportion of inward FDI except in Brazil and Mexico and the profits of transnational enterprises operating in Latin America is increasing, up fivefold in nine years, rising from UD$20.425 billion in 2002 to US$113.067 billion in 2011. On average, transnational enterprises were repatriating a slightly higher proportion of profits to their parent companies at 55% than they were investing in the countries of the region where they were generated at 45%.
The dramatic surge in these profits tends to neutralise the positive effect of FDI inflows on the balance of payments, according to ECLAC. Brazil remains the main recipient of FDI, despite the slight 2% decrease recorded in 2012, when it received US$65.272 billion. In 2012, the largest increases were in Peru which received US$12.240 billion and Chile with US$30.323 billion. Other countries that posted higher figures than in 2011 were Argentina and Paraguay both up 27%, Bolivia up 23%, Colombia up 18% and Uruguay up 8%. In Central America, the most striking results were El Salvador with an increase of 34%, Guatemala up 18%, Panama up 10% and Costa Rica up 5%.
Mexico’s figures were much lower than in 2011, and this is largely attributable to the US$4.100 billion dollar flotation of 25% of the subsidiary of Spain’s Santander bank. Other countries that experienced falls in 2012 were Ecuador, Venezuela and Nicaragua. United States and European Union countries remain the main investors in Latin America and the Caribbean, with Canada and Japan also making significant contributions.
Outward direct investment abroad grew by 17% between 2011 and 2012, to reach US$48.704 billion, an increase of 2% compared to records achieved in 2010. In the past decade, most investments came from Brazil, Chile, Colombia and Mexico, while in 2012 they came almost exclusively from Mexico and Chile.