Latin America and the Caribbean received a record $184.92 billion in foreign direct investment in 2013, 5% more than in 2012, according to the Economic Commission for Latin America and the Caribbean (ECLAC). This came despite declines in FDI in Argentina, Brazil, Chile and Peru.
According to the study, 82% of FDI flows into the region’s six biggest economies, although in relative terms the investment often has a bigger impact in smaller nations, especially in the Caribbean.
Brazil receives 35% of all FDI in Latin America and the Caribbean. In 2013, the country attracted US$64 billion, a slight drop from 2012. Mexico is the second-biggest recipient with $38.2 billion dollars in 2013, which was double the amount received in 2012 thanks to Anheuser-Busch Inbev’s acquisition of the Modelo beer company for US$13.2 billion.
Chile (-29%), Argentina (-25%) and Peru (-17%) all received less foreign investment last year than in 2012, while flows increased significantly to Panama (61%) and Bolivia (35%). Central America drew 21% more FDI than in 2012 while the Caribbean registered a 19% decline (due to a specific operation in the Dominican Republic).
“In the last decade, foreign direct investment in Latin America and the Caribbean has multiplied by four, but it is necessary to analyze its role in terms of achieving structural change for equality. We believe this income should be part of the production diversification processes that the region’s countries are carrying out,” said ECLAC’s Executive Secretary, Alicia Bárcena.
According to the organization’s top representative, “investment in sectors with high technological content has a greater possibility of generating positive impacts in the local economy, but it is equally important for transnational businesses to establish links and productive chains with local companies.”
The average profitability of transnational companies in the region dropped below 6% last year, its lowest level in a decade, mainly due to the decline in prices for some commodities exports.
Economic growth across the region is slowing down this year, but increasing domestic demand is helping some countries maintain their growth rate. In the last two years, economic expansion has slowed and metal prices have fallen, which is why ECLAC forecasts that FDI flows will diminish slightly in 2014. Despite this, the organization notes that transnational companies still show great interest in the region’s long-term growth in the consumption and exploitation of natural resources.
ECLAC’s study showed no evidence of significant change in terms of which sectors receive the most FDI. In 2013, the service sector attracted 38% of the total, manufacturing received 36% and natural resources 26%.
Europe as a region led the list of main investors in 2013; it accounted for about half of all FDI in both in Brazil and Mexico. Meanwhile, the United States continues to be the single biggest investor.
Direct investment from Asia remained stable in 2013, with Japan topping the ranking. FDI from China is difficult to track in official statistics, ECLAC says, but estimates indicate that since 2010 this country has invested about US$10 billion per year throughout the region.
ECLAC also found that the contribution of multinational companies to job creation in the region is secondary, because FDI is focused on projects aimed at expanding production capacity. It is estimated that multinationals accounted for no more than 5% of net job creation in the region in 2013.