MercoPress. South Atlantic News Agency

FDI to Latinamerica reached 72 billion US dollars

Foreign direct investment, FDI, worldwide surged to an estimated 897 billion US dollars in 2005, 29% from the preceding year, and a four-year slump in flows to developed countries was sharply reversed with an estimated 72 billion US dollars going to Latinamerica according to a UNCTAD report released this week.

FDI in the world's wealthier nations jumped an estimated 38% for the year, led by mounting investment in the United Kingdom, which led the world in FDI for the first time since 1977.

Increases were also recorded for developing countries, although at a slower rate, 13% climb as compared with 41% in 2004, and for the countries of South-East Europe and the Commonwealth of Independent States (CIS). Inflows to Latin America and the Caribbean continued their upward trend during 2005, but at a lower pace than in 2004, rising 5% to an estimated 72 billion US dollars.

Preliminary data suggest that Brazil experienced a decline of 15%, to 16 billion and yielded the position of the top recipient in the region to Mexico, even though, with less FDI going to the financial sector, flows to Mexico declined by 4% to 17 billion.

Chile maintained a high level of inflows, due in part to rising prices for copper, although its total was slightly lower than in 2004, falling from 7.6 to 7 billion US dollars. Colombia registered a significant increase, mainly due to a cross-border 4.8 billion US dollars M&A deal between Bavaria and SABMiller.

FDI in Argentina reached 4.2 billion US dollars in 2005, 100 million above 2004, but still distant from levels before the 2001/02 crisis with 10.4 billion US dollars of 2000.

FDI global inflows rose from 415 billion US dollars in 2004 to 573 billion US dollars in 2005. The bulk of this increase was accounted for by increased investment in the United Kingdom, which reported inflows of 219 billion, twice that of the United States. This is the highest figure ever recorded for a European country.

However, the increase was largely accounted for by the merger of Shell Transport and Trading Company Plc and Royal Dutch Petroleum Company into Royal Dutch Shell, a Dutch company, for some 100 billion US dollars. Other reasons for the significant increase in FDI included the virtual end of large loan repayments from affiliated firms to their parent firms abroad. In Germany, for example, such repayments had thrown 2004 FDI inflows into negative territory, at 39 billion.

FDI increases also were underpinned by a favourable business climate (rising profits) and economic growth. Mergers and acquisitions (M&As) - including cross-border activity - increased 40% for the year, and amounted to roughly 2.9 trillion US dollars in 2005, partly reflecting higher share prices in many major financial markets. Thus, most major FDI recipients among developed countries (Belgium, Canada, France, Germany, Ireland, Netherlands and United States) recorded high inflows.

FDI to the EU-15 came to an estimated 408 billion, up 76%, helped by the surge in investment in the United Kingdom and by further market integration in the Euro zone. FDI inflows to 10 new EU members rose by 36% to a record level of 38 billion, mainly due to high rates of reinvested earnings.

Overall, FDI inflows to the developing world continued to rise in 2005 - they were up 13%, to an estimated 274 billion. Following 2004's significant increase of 41%, this brought FDI to the highest level ever for developing countries.

FDI in Africa rose in all the major oil-producing countries as well as in Egypt and South Africa. Overall, FDI flows to the region reached an estimated record 29 billion. While these increases are significant in an historical context, it should be stressed that they relate mainly to the oil sector and to other natural resources industries.

Flows to Asia rose about 11% to an estimated 173 billion US dollars. For the first time since 1999, FDI to China - the largest recipient in Asia as well as among all developing countries - did not increase. They remain almost unchanged at an estimated 60 billion, while FDI to the Republic of Korea and to Malaysia fell. Increased investment in Hong Kong (China), Indonesia and Thailand more than compensated for these declines, however. India saw its inflows jump from 5 billion to an estimated 6 billion. Among various sub-regions, the sharpest growth was in West Asia, where FDI leaped an estimated 50%, largely because of increased investment in the oil sector and related activities, and in telecommunications and real estate. Saudi Arabia and the United Arab Emirates saw the highest increases there.

FDI inflows to South East Europe and the CIS reached an estimated 50 billion. In Russia alone, FDI doubled from its 2004 level from 12 to 26 billion. High oil prices in 2005 apparently further accelerated inward FDI. Chinese FDI is emerging in the region (e.g. Petrokazakh was acquired by China National Petroleum Corporation (CNPC) in 2005 for 4.2 billion US dollars.

Half of Colombia's population below poverty line Half the population of Colombia was living below the poverty line in 2005, according to a report released in Bogotá by the National Planning Department, DNP. DNP, which depends directly from the office of President Alvaro Uribe said that despite the fact that 22 million Colombians are catalogued as poor, this sizable figure still represents an improvement over the 52.7% of 2004. Poverty is especially high in the country's rural areas, where Colombia's decades-long internal conflict is mostly waged. Over 68% of the rural population is below the poverty line, 0.7% increase over 2004.

However, urban poverty fell from 47.3% in 2004 to 42.3% in 2005, which DNP director Santiago Montenegro said reflects a 1.3 million people reduction. The paper also shows that 14.7% of total population is indigent, representing 6.54 million persons.

Mr. Montenegro added that between 2002 and 2005 there has been a reduction in income distribution inequality in Colombia, with the share of the poorest increasing, middle classes remaining unchanged, and the wealthy, on average, less rich.

Colombia is one of Latinamerican countries with the greatest inequality in wealth distribution. The Colombian economy expanded 5% in 2005.

A 2004 World Bank report found that in Latin America as a whole, the wealth disparity between the richest and poorest fifths of the population is on the order of 30 to 1.