FDI Surges in South America: Chile Takes the Lead

By Narayan Ammachchi Foreign direct investment (FDI) into South American countries rose sharply in 2012, but slowed significantly in Central America and the Caribbean countries, says UNCTAD’s World Investment …

By Narayan Ammachchi

Foreign direct investment (FDI) into South American countries rose sharply in 2012, but slowed significantly in Central America and the Caribbean countries, says UNCTAD’s World Investment Report 2013.

FDI slumped 20 percent in Central America and the Caribbean. In Mexico, the region’s biggest economy, inflows dropped by 40 percent in just one year.

Interestingly, nearshoring to Mexico is picking up momentum, the report says, as more manufacturing companies are seeking  to reduce costs and bring products into the U.S. market in a more timely and cost-effective manner.

According to the report, FDI rose by 12 percent in South American countries in 2012. But what is driving investment in that continent  is its mineral wealth such as oil, gas and iron ore. The rising middle class is also drawing a large amount of investment into the continent, the report noted.

FDI growth was driven by countries such as Chile (+32 per cent to $30 billion), Colombia (+18 per cent to $16 billion), Argentina (+27 per cent to $13 billion) and Peru (+49 per cent to $30 billion), which were, in that order, South America’s main recipient countries in 2012 after Brazil.

FDI growth was higher in Chile than that in Brazil, the region’s biggest economy. Brazil received $65 billion, a drop of 2 percent compared to the previous year.

Total FDI to the region in 2012 was $244 billion, the report reveals. Flows into Central America and the Caribbean came to $99 billion, and FDI directed to South American countries reached $144 billion.

The report shows FDI to the region’s offshore financial centers decreased by 16 per cent to $74 billion. However, that total remains higher than the level reached before the global financial crisis.

Mergers and Acquisitions

From 2010 to 2012, Latin American companies spent a net $66 billion acquiring companies abroad. Cross-border mergers and acquisitions (M&As) sales in 2012 increased by 5 per cent to $21 billion, with an important shift in the origin of the purchasers, the report says.

Developing-country-based transnational corporations (TNCs) continued to increase their acquisitions in 2012 – they climbed by 26 per cent. Debt-strapped European companies sold assets to raise cash, as in the case of Banco Santander (Spain) which sold a 95 per cent stake in its Colombian unit to CorpBandca (Chile) for about $1.2 billion.

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Outward FDI from Latin America decreased by 2 per cent to $103 billion during the year, the report reveals. However, this data does not reflect the dynamism of Latin American TNC activity abroad, as shown by a 74 per cent increase in their cross-border acquisitions in 2012, to $33 billion, the report notes.

Finally, the UN agency says, many manufacturing units are shifting their base from China to Mexico following a sudden rise in fuel cost and wages in China.

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