LatAm & Caribbean Sees Influx Of Foreign Direct Investment

by Mike Godfrey, Tax-News.com, Washington

09 May 2011

Aided by investment-friendly fiscal policies, Latin America and the Caribbean saw a 40% increase in Foreign Direct Investment (FDI) during 2010, with a further upsurge of 15% - 20% expected in 2011, according to a new report by the Economic Commission for Latin America and the Caribbean (ECLAC).

Such a strong showing marks the region out as having the strongest percentage increase as a recipient of FDI, a trend also replicated in terms of the sourcing of FDI. FDI inflows totaled USD112.6bn in 2010, with outgoing FDI almost quadrupling year-on-year, reaching USD43.1bn - a record high. According to the report, these figures demonstrate the buoyancy of the so-called trans-Latins, namely transnational Latin American and Caribbean enterprises. Moreover, the region also substantially increased its share of the recipient market from 5% to 10% between 2007 and 2010, against a backdrop rising investment in developing countries.

Unsurprisingly, Brazil, with its government currently struggling to restrain rapid currency appreciation fostered by dramatically increased levels of such investment, was the main recipient of FDI. Compared to 2009, Brazil garnered a record 87% increase in FDI inflows, with numbers rising from USD 25.9bn in 2009 to USD48.5bn in 2010. The extent to which Brazil has dominated the regional market is highlighted by the fact that Mexico, second on the report's list, lagged behind at USD17.7bn. Chile then followed closely in third, with USD15.1bn, with Peru and Colombia rounding out the top five, receiving USD7.3bn and USD6.8bn in FDI respectively. Levels are predicted to continue rising, albeit at a less spectacular rate, with the report estimating an increase in FDI inflow of between 15% and 20% in 2011.

The US accounted for 17% of the FDI received by the region in 2010, with the Netherlands providing 13%, China 9%, and Canada and Spain 4% each. In particular, the report points to the emergence of a strong Asian investment presence, with China placing almost USD15bn in the region, primarily in the form of mergers and acquisitions. Investment has chiefly targeted the extraction of natural resources, with the report expecting a market diversification in the medium term as Chinese companies become active in the infrastructure and manufacturing sectors.

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 took the form of primary sectors. In Mexico, Central America and the Caribbean, investment continued to target mainly manufactures (54%) and services (41%).

Mexico led the way with its outgoing FDI, investing USD12.7bn abroad in 2010. Brazil follows with USD11.5bn, Chile with USD8.7bn, and Colombia with USD6.5bn.

Commenting on the report, Alicia Bárcena, Executive Secretary of ECLAC, said "The figures we are presenting today 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".

She also emphasised 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".

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