MercoPress. South Atlantic News Agency

Foreign Direct Investment in Latam could plunge up to 45%

Foreign direct investment (FDI) in Latin America could plunge up to 45% this year as the global financial crisis stalls capital flows and shrinks the region's economy by more than 0.3%, warned the United Nations Economic Commission on Latinamerica and the Caribbean, Cepal.

Investment reached a record 128.3 billion US dollars in Latam in 2008, up 13% from the year before but significantly less than the 52% gain seen in 2007according to Cepal’s annual report which was released Wednesday in Santiago de Chile.

Still, strong economic growth rates and high prices for the region's commodity exports ensured that capital flows to Latin America continued even as total foreign direct investment fell 15% worldwide, said Cepal.

“Uncertainty regarding the extent and depth of the crisis makes it difficult to anticipate FDI funds. Although a drop can be expected in 2009” it will be above average funds received by the region during 2001/2006.

Sectors forecasted to suffer the most are the assembly or maquila industries while mining and hydrocarbons will be the least affected, said Alicia Bárcena, Cepal’s Executive Secretary.

Latinamerica received about 8% of global foreign direct investment in 2008, with 70% or 90 billion going to South America, especially Brazil, Chile and Colombia - an increase of 24% over 2007, according to the report. Mexico, meanwhile, saw investment fall 20% from 2007, due to its closer ties to the recession-stricken United States.

The US and Spain nonetheless remained the top sources of foreign direct investment in the region, accounting for 24% and 9%, respectively. Canada and Japan boosted their participation to 8% and 6%, largely through investments in mining and other natural resource projects, the commission said.

Gains in foreign direct investment, which refers to investment in physical assets such as factories rather than financial assets like stocks, plunged in 2008 as the global economic crisis pummeled foreign investors at home, dried up credit for new projects and slashed commodity prices from their midyear peak.

As a result, direct investment in Latin America will likely fall between 35 and 45% this year but still above the region's 2001-2006 average, the commission said.

The decline will likely slow growth by more than the 0.3% contraction Cepal had originally predicted, said Executive Secretary Alicia Barcena.