Central America and the Caribbean Received Record FDI in 2013

Foreign direct investment in Latin America and the Caribbean rose 17% in 2013 to a record $294 billion, according to the United Nation’s intergovernmental agency UNCTAD. FDI inflow …

Foreign direct investment in Latin America and the Caribbean rose 17% in 2013 to a record $294 billion, according to the United Nation’s intergovernmental agency UNCTAD. FDI inflow decreased slightly in South America but rose at a record rate in Central America and the Caribbean.

Foreign investment in the Caribbean rose to $113 billion from $82 billion in 2012, while Central America received $48 billion in 2013, an increase of 92% from the $25 billion received in 2012.

Developing economies accounted for more than half of global FDI again in 2013, as their inflows reached a new high, at an estimated US$759 billion.

“The increase was mainly driven by Latin America, Asia and the Caribbean,” says the UN agency in its report released this week.

While in previous years FDI growth to the region was largely driven by South America, in 2013 Central America and the Caribbean were the main recipients of foreign investment. Flows to South America declined by 7%.

“The US$18 billion acquisition of Grupo Modelo in Mexico explains most of Central America’s increase in FDI, while the strong rise in the Caribbean was mainly driven by the British Virgin Islands,” the report added.

The decline of FDI flows to South America came after three years of strong growth bolstered by the strength of commodity prices that fueled rising profits on investment as well as reinvested earnings in the mining industry. Decreasing commodity prices seem to have brought a stop to the boom in FDI in this industry, especially in countries such as Chile (-33% to US$20.4 billion) and Peru (-2% to US$12 billion).

In addition, FDI to Brazil – the largest recipient of FDI in the sub-region, with 47% of total South American FDI flows in 2013 – declined by a slight 3.9% in 2013, but remained significant (US$63 billion). “Nevertheless, this decline should be seen in the context of strong growth in previous years that boosted FDI in Brazil to historical highs,” said the UN agency.

FDI flows to the six countries of MERCOSUR declined by 2.3% in 2013, due mainly to a 3.9% decline in Brazil – the dominant country in the alliance – as well as declines in two other member states: Argentina (-13%) and Paraguay (-32%). Flows to Venezuela were boosted by a rise in inter-company loans and reinvested earnings. MERCOSUR’s share in global FDI flows remained at 6% in 2013, though three times higher than the pre-crisis level.

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