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Latin America and the Caribbean Received 184.92 Billion $ in Foreign Direct Investment in 2013

Latin America and the Caribbean Received 184.92 Billion $ in Foreign Direct Investment in 2013

Posted by Juan Gavasa on May 30, 2014

Latin America and the Caribbean notched a new historic high in 2013 upon receiving 184.92 billion dollars in foreign direct investment (FDI), 5% more than in 2012 in nominal terms, the Economic Commission for Latin America and the Caribbean (ECLAC) informed today.

Global FDI flows climbed 11% in 2013 from the previous year, and Latin American and Caribbean participation in the world's total stayed at 13 %, said the report Foreign Direct Investment in Latin America and the Caribbean 2013, presented today at the United Nations organization's headquarters in Santiago, Chile.

FDI towards the region has grown steadily since 2003, with the exception of 2006 and 2009, although in proportion to the size of the economies it has remained practically stable since 2011. This growth has been sustained by an increase in domestic demand and high prices for commodities exports.

In the last two years, the economic expansion has slowed and metal prices have fallen, which is why ECLAC forecasts that FDI flows will diminish slightly in 2014. Despite this, the organization notes that transnational companies still show great interest in the region's long-term growth in consumption and in the exploitation of natural resources.

According to the study, 82% of FDI flows go to the region's six biggest economies, although in relative terms they have more impact in smaller nations, especially those of the Caribbean.

Brazil receives 35% of the FDI that comes to Latin America and the Caribbean: in 2013 the country attracted 64.046 billion dollars, slightly below the level seen in 2012. Mexico is the second-biggest recipient with 38.286 billion dollars in 2013, which was double the amount received in 2012 thanks to Anheuser-Busch Inbev's acquisition of the Modelo beer company for 13.249 billion dollars.

In 2013, the countries that received less foreign direct investment were Chile (-29%), Argentina (-25%) and Peru (-17%), while flows increased significantly to Panama (61%) and Bolivia (35%). Central America drew 21% more FDI than in 2012 while the Caribbean registered a 19% decline (due to a specific operation in the Dominican Republic).

"In the last decade, foreign direct investment in Latin America and the Caribbean has multiplied by four, but it is necessary to analyze its role in terms of achieving structural change for equality. We believe this income should be part of the production diversification processes that the region's countries are carrying out," said ECLAC's Executive Secretary, Alicia Bárcena.

According to the organization's top representative, "investment in sectors with high technological content has a greater possibility of generating positive impacts in the local economy, but it is equally important for transnational businesses to establish links and productive chains with local companies."

The average profitability of transnational companies in the region dropped below 6%, its lowest level in a decade, mainly due to the decline in prices for some commodities exports. Despite that, these companies' total profits rose to 111.662 billion dollars in 2013. These earnings, the report warns, represent a negative flow that affects the region's current account deficit.

With respect to the sectors that receive flows, ECLAC's study does not show evidence of significant change. In 2013, the service sector attracted 38% of the total, manufacturing 36% and natural resources 26%.

Europe as a region led the list of main investors in 2013: both in Brazil and Mexico it accounted for about half of FDI flows. The United States, for its part, continues to be the biggest single investor.

Direct investment coming from Asia remained stable in 2013, with Japan topping the ranking. FDI from China is difficult to track in official statistics, ECLAC says, but estimates indicate that since 2010 this country invests about 10 billion dollars per year throughout the region.  

In 2013, investments by Latin American transnational corporations, known as translatinas, fell 33% to 31.611 billion dollars. Nevertheless, these firms continue to show great dynamism, the report stresses.

The 50 biggest translatina companies originate in Mexico (16), Brazil (14), Chile (11), Colombia (6), Argentina (2) and Venezuela (1). These firms have become internationalized in basic industries (energy, mining, cement, cellulose, iron and steel), manufacturing of products of mass consumption (food and beverages), and some services (electrical power, telecommunications, air transport and retail sales).

Finally, the study analyzes some effects of FDI on employment, both in terms of quantity and quality of the jobs created.

One initial finding is that the contribution of multinational companies to job creation in the region is secondary. Between 2003 and 2013 they contributed more to the creation of direct jobs than in the past because 60% of the FDI was focused on projects aimed at expanding production capacity. Nevertheless, it is estimated that they accounted for no more than 5% of net job creation in the region during that period.

According to ECLAC, it is necessary for policies on FDI to be part of the efforts to diversify production that many nations in the region are carrying out, and for the strategies of transnational companies to be compatible with the development goals of the countries receiving the foreign direct investment.

As a result, countries should move quickly to develop institutional resources and policies to attract FDI towards those sectors they consider a priority in their plans for productive transformation. In this way, transnational corporations could be better integrated into the local productive fabric.

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