Foreign Direct Investment for Latin America and Caribbean Drops for Third Straight Year

ECLAC Executive Secretary Alicia Bárcena

MEXICO CITY, Mexico, Thursday July 5, 2018 –
Despite an international context characterized by stronger growth in the global economy, abundant international liquidity, high corporate returns and optimism in financial markets, the flows of Foreign Direct Investment (FDI) in Latin America and the Caribbean fell for the third year in a row in 2017.

The United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC) reported today they dipped 3.6 per cent from the previous year to US$161.7 billion. The amount was 20 per cent below the level reached in 2011.

The information is contained in the report, ‘Foreign Direct Investment in Latin America and the Caribbean 2018’, released by ECLAC. The commission therefore calls on governments to incentivize quality FDI that is compatible with sustainable development, above all to promote a change in countries’ productive structures that enables the fulfilment of the 2030 Agenda and its Sustainable Development Goals (SDGs).

The report explains that in a medium-term analysis, the persistent fall in FDI since 2011 can be attributed to lower prices for basic export products, which have significantly reduced investment in extractive industries, and to the economic recession experienced in 2015 and 2016. These two trends, however, were partially reverted in 2017 when the region resumed growth (1.3 per cent of GDP) and the prices of oil and metals picked up. This uptick in prices raised the returns on investment after several years of declines, which also encouraged reinvestment of profits, albeit not enough to make up for the fall in FDI in the extractive industries, the report indicates.

While in 2016 the vast majority of countries in the region saw declines in their FDI inflows, in 2017 FDI rose in the majority of them. In the Caribbean, flows grew 20 per cent to US$5.8 billion, more than half (60 per cent) of which went to the Dominican Republic. In these countries, increased investment in the area of tourism has been very significant, but flows to the natural resources sector have also grown in Jamaica and Guyana.

According to ECLAC’s FDI report, the main sources of foreign direct investment to the region in 2017 were the European Union and the United States, respectively.

The fall in FDI in the region that has been occurring since 2011 has been concentrated almost exclusively in the natural resources sector, with a 63 per cent drop, ECLAC said. FDI inflows in the services sector fell 11 per cent while rising slightly in the manufacturing sector.

“This rearrangement creates opportunities to focus investment on those sectors with more capacity to drive structural change and sustainable development in the region, a process that must be accompanied by policies that support capacity development in recipient countries,” it said.

Speaking at the press conference where the report was launched, ECLAC Executive Secretary Alicia Bárcena said it is not simply about creating the conditions for foreign capital to enter, but also about “attracting investments that become sources of technological, productive and employment-related overflow, and that are oriented toward sustained, inclusive and sustainable economic growth”.

The report emphasizes that sectors such as renewable energies, telecommunications and automobile manufacturing are examples of how FDI can contribute to diversifying the productive structure, improving local capacities, creating quality employment and generating linkages with local and regional providers.

Meanwhile, FDI outflows from the region’s countries fell more sharply than inflows and totalled just US$23.4 billion in 2017, 34 per cent below what was notched in 2016 and less than half of what was seen in 2014.

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