Foreign investment in Latinamerica and the Caribbean increased 44% in 2004 with Brazil and Mexico the leading recipients, according to the latest release from the United Nations Conference on Trade and Development, UNCTAD.
"Foreign direct investments are crucial to address poverty and create economic opportunities, particularly jobs", said George Kell, CEO of the UN Global Compact program. Latinamerica and the Caribbean after four consecutive years of foreign investment descent, in 2004 managed to attract 68 billion US dollars.
Brazil with 18 billion and Mexico 17 billion were the main recipients most of it directed to the manufacturing sector as opposed to other years when services was the attraction.
The two leading economies of the hemisphere together with Chile and Argentina absorbed two thirds of all the direct foreign investment in 2004.
But measured by growth Mercosur members were the most dynamic with foreign investment in Argentina expanding 125%, Brazil 79% and Chile 73%. Central America and the Caribbean also had a good overall performance with Mexico's share expanding 46% in 2004 over 2003. However in the Andean Community foreign investment remained almost stagnant with the exception of Colombia with an expansion of 53% and Peru 37%.
Venezuela, Bolivia and Ecuador suffered the most given the introduction of changes in legislation regarding mineral resources which scared foreign direct investment.
According to the UNCTAD report the commodities bull market has triggered fiscal and contract modifications from the different governments which are demanding a higher percentage of income from natural resources exploitations by private corporations.
The countries mentioned in the report are Argentina, Bolivia, Chile, Ecuador, Peru and Venezuela, but the more obvious cases because of the uncertainty generated by the new oil legislation are Bolivia and Venezuela and in oil transport, Ecuador.
On the opposite side certain countries such as Argentina and Brazil have adopted foreign investment promotion policies and some Caribbean countries have finished with government monopolies in the telecommunications sector. Brazil ranks first with direct foreign investment totalling 9,5 billion US dollars compared to 11 billion for the whole region.
Besides Brazil's multinational corporations such as Petrobras, Companhia Vale do Rio Doce, Metalurgica Gerdau are among those with the largest assets overseas together with the Mexican Cemex and America Movil. The German Dresdner Bank also published this week a report about Latinamerica forecasting an average expansion of 3,8% in 2006 with inflation reaching 5,6%.
The region's GDP will total 2,48 trillion US dollars, exports 555 billion and foreign debt 780 billion US dollars, which will represent a 1,3% increase.
But the growth forecast is 0,2 percentage less than in 2005 and according to the Dresdner bank this can be traced to an overheating of local stock exchange markets and bonds issues, which is yet unknown how softly they will land.
This is a new situation since in past cycles Latinamerica risks were concentrated in potential currency devaluations, non payment of debt or in extreme cases default.
The bank points out that deceleration was very much evident in Mexico during the second quarter; Brazil is forecasted to expand 3,4% which is 1,5% less than in 2004; Chile, Argentina, Venezuela, Uruguay which had record breaking growth last year will expand more modestly.