2007 Saw Record Investment In Latin America And Caribbean

by Mike Godfrey, Tax-News.com, Washington

22 May 2008

Latin America and the Caribbean received the record figure of almost USD106bn in foreign direct investment (FDI) in 2007, due to regional economic growth and sustained global demand for natural resources.

This is the highest volume of FDI in the region since 1999, when investment totaled USD89bn and was strongly linked to privatizations.

These are some of the conclusions of the report 'Foreign Investment in Latin America and the Caribbean, 2007', launched earlier this month by Jose Luis Machinea, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC).

Within the context of a global FDI increase, the rise in FDI in Latin America and the Caribbean in 2006-2007 reached 46%. Among developing regions, FDI in Latin America and the Caribbean registered the highest increase (an average 17% rise in developing countries and 43% in economies in transition).

The main FDI recipient country in 2007 was Brazil, with USD34.6bn, followed by Mexico (USD23.2bn), Chile (USD14.5bn) and Colombia (USD9bn, see chart). In terms of GDP, excluding financial centers in the Caribbean, the main FDI recipients were Panama, Chile and four Central American countries (Honduras, Costa Rica, El Salvador, and Nicaragua).

Available data suggests that during last year, the services sector concentrated most investment in the region, although with significant differences among recipient countries.

In Brazil, the services sector was the main recipient of investment. In Chile, Colombia and Ecuador, most FDI was placed in natural resources, while in Mexico, capital flows went predominantly to the manufacturing sector.

The main foreign investors in Latin America and the Caribbean in 2007 were the United States, the Netherlands and Spain. The region's performance as FDI recipient in 2007 was not hurt significantly by the United States' economic slowdown, given that it did not affect markets until the fourth trimester of the year. However, its effect on investment flows in 2008 may be relevant.

Outward investment flows from Latin America and the Caribbean to other regions in 2007 fell to USD20.6bn, after reaching a maximum high of over USD42bn in 2006. More than a deceleration of the process of internationalization of Latin American transnationals (trans-Latins), the drop reflects the strong impact on aggregate flows of a single transaction in 2006: the acquisition of Inco (Canada) by the Brazilian Companhia Vale do Rio Doce (CVRD).

In 2007, there was a comparable acquisition -the purchase of the Australian company Rinker by Mexico's Cemex-, but given that it was partially financed through Cemex subsidiaries abroad, it was not registered in the statistics.

Beyond these large transactions, many trans-Latins are taking their internationalization processes to new levels, in sectors (software, petrochemicals, meatpacking) different to those in which they have already established themselves as international actors (steel, mining, cement, gas and oil, food and drink, commerce).

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