November 27, 2014
Mixed year for foreign investment in LatAm
A report released yesterday by the United Nations Conference on Trade and Development (UNCTAD) has revealed that Central America and the Caribbean were the most significant recipients of Foreign Direct Investment (FDI) in Latin America in 2013, a year during which the flow of cash to South America also fell for the first time in three years.
The 2014 World Investment Report, published in Geneva, also pointed to a global increase in investment in 2013 of nine percent, reaching a total of US$1.45 trillion after a slump in 2012.
Growth is expected at a rate of approximately US$100 billion every year from here until 2016, particularly in developed countries. Nonetheless, the UNCTAD warned that “fragility in some emerging markets and risks related to policy uncertainty and regional instability may negatively affect the expected upturn in FDI.”
A Mixed year for LatAm
If offshore financial centres such as the British Virgin Islands and the Cayman Islands are excluded from the calculations, FDI grew by six percent in 2013 in Latin America, equivalent to a US$182 billion jump.
The region’s blushes were actually saved by a massive increase to the Central America and Caribbean subregion on the back of a US$48 billion increase in FDI in the year, approximately 64 percent higher than last year’s figures. A disproportionate amount of the increases however, were due to the fact that Belgian brewed AB InBev spent US$18 billion in completing the acquisition of Mexico’s Grupo Modelo.
In comparison, FDI to South America fell eight percent (US$11.9 billion) compared to 2012 after three consecutive years of growth, with investment heavily biased toward the primary, extractive and automobile and electronics sectors.
For example, the primary sector received inflows of up to US$17 billion, up 86 percent on the year. Similar percentages were seen in the automotive industry, of vital importance for both the Argentine and Brazilian economies and their respective trade balances.
For UNCTAD, this year’s strong performance for the primary and extractive sectors is likely to continue in the next few years, as Mexico and Argentina in particular offer investment opportunities in the oil and gas sectors.
The UN body considers that “in Mexico, FD in the oil and gas industry is likely to receive a powerful boost after the approval of the long-disputed energy reform bill that ended a 75-year State oil monopoly.”
In comparison with Central America and the Caribbean, where more than half of the capital stock is dedicated to the services sectors, in South America investments are more oriented towards the manufacturing and primary sectors. Correspondingly, output and exports follow a similar trend, with commodities playing a greater role in South America.
One of the reasons that FDI in South America has dropped has been anticipated decrease in the global price of commodities such as grains and copper on the back of decreased Chinese economic growth.
The report also goes into detail about the strategic differences between the Mexican and Brazilian automotive sectors.
Mexico’s is export-oriented to meet US demand whereas the Brazilian sector has the domestic and Argentine markets as its main markets, and greater reliance on locally-built inputs.
While noting that growth potential is “promising” in both countries, UNCTAD notes that Brazil’s approach has lead to “integration of local suppliers into the automobile value chain, and the development of local innovation and research and development capabilities.”