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CARIBBEAN | ECLAC says Foreign Direct Investment toward the Caribbean continues downward trend

Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Alicia Bárcena Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Alicia Bárcena
SANTIAGO, Chile, Aug 11,  CMC – The Economic Commission for Latin America and the Caribbean (ECLAC) says foreign direct investment (FDI) towards the region is continuing a downward trend and  called on countries to create policies to attract flows that support national processes of sustainable development.

In its annual report, titled “Foreign Direct Investment in Latin America and the Caribbean 2017” released here, ECLAC projected a “fresh decline” of around five per cent in 2017 and that flows of FDI into Latin America and the Caribbean shrank 7.9 per cent in 2016, compared with 2015, totalling US$167.04 billion.

Alicia Bárcenas

It said that figure represents a 17 percent decline from the peak reached in 2011.

“This outcome is due to low commodities prices and their impact on investments made in the natural resources sector, to slow growth in economic activity in various economies and to the global scenario of technological sophistication and an expanding digital economy that tends to concentrate transnational investment in developed economies,” the report noted.

ECLAC stated that in 2016, Latin America and the Caribbean received 10 per cent of global FDI, a similar share to 2015 but below the 14 per cent average that had been achieved between 2011 and 2014.

Despite this downward trend, the report notes FDI flows represent 3.6 per cent of the region’s gross domestic product (GDP), while the global average is 2.5 per cent, “which shows the relevance of these intakes for Latin American and Caribbean economies.”

“Foreign Direct Investment has been an important factor for the development of export activities that are key to the growth of Latin America and the Caribbean, as well as for the creation of new sectors,” said Alicia Bárcena, ECLAC’s executive secretary, in presenting the report on Thursday

“But the big productivity gaps that persist in the region and the new technological scenarios that the fourth industrial revolution poses require new policies to harness the benefits of FDI in national processes of sustainable development,” she added.

Bárcena urged that closer attention be paid to the fact that in several countries of the region, capital outflows from FDI income surpassed inflows in the 2010-2016 period.

Despite the recession, the report states that Brazil experienced a 5.7 percent increase in its FDI inflows in 2016 and remained the main receiving country in the region (US$78.929 billion dollars, equivalent to 47 percent of the total).

In the Caribbean, the report notes that the Dominican Republic received 49 percent of the sub-region’s FDI and Jamaica 16 per cent.

The report indicated that FDI aimed at the natural resources sector fell from 18 per cent in 2010-2015 to 13 per cent in 2016, in line with the end of the boom in commodities prices. In contrast, the weight of manufacturing and services rose to 40 per cent and 47 per cent, respectively.

The new investments announced were concentrated in renewable energy, telecommunications and the automotive industry.

Renewable energy projects represented 18 per cent of the total amount announced in 2016 – in 2005-2010 that figure was six per cent – meaning this activity was the most dynamic in the time period, especially in Chile and Mexico.

With regard to the investing countries, the study indicates that they have not diversified: 73 per cent of total FDI came from the United States (20 per cent), which is the top individual investor, and the European Union (53 per cent).

The report says China was responsible for just 1.1 per cent of the FDI received by the region in 2016, “a figure that likely underestimates the presence of Chinese capital in Latin American and Caribbean countries.”

“In fact, if one observes the value of mergers and acquisitions in 2016, the Asian giant was the fourth-biggest source of investment. Given the major deals that China has made in the first half of 2017, it is to be expected that its share will increase next year,” the report noted.

It also confirms that 2016 was a weak year for transnational companies, known as “translatinas.” FDI outflows from countries in Latin America and the Caribbean dropped 50 per cent to total US$24.609 billion the report added.

  • Countries: Caribbean