MercoPress. South Atlantic News Agency

FDI in Latam expands 41% in 2011 first half; strong support from ‘trans-Latins’

Alicia Bárcena said Latam based corporations are receiving funds from subsidiaries

In spite of global financial volatility during the first half of 2011, foreign direct investment (FDI) in Latin America and the Caribbean continued to grow maintaining the 2010 trend, according to a Tuesday release from the UN Economic Commission for Latin America and the Caribbean, ECLAC, in Santiago de Chile.

FDI flows to the eighteen economies in the region increased by 54% during the first half of 2011 compared with the same period in 2010. However, the region has shown a significant drop in its investments overseas, which posted a negative balance during the first half of the year.

ECLAC estimates that by the end of 2011, FDI inflows will grow significantly, which could mean a new historical record, confirming the projections made in May.

“The current inflow of investment confirms the good performance of Latin American and Caribbean economies, despite the economic turbulence. As for FDI, our message to the countries has been -and now I reiterate it-to take advantage of these inflows for productive and innovative development policies,” said the Executive Secretary of the Organization, Alicia Bárcena.

ECLAC said that the increase in FDI inflows is due to the stability and economic growth in most of the region’s countries and the high prices of raw materials, which continue to attract significant investment in mining and hydrocarbons, particularly in South America.

However, despite the good FDI prospects, the Euro crisis, the fiscal turmoil in the US and the global financial volatility are generating certain uncertainty for the financing of corporations and their future investment plans.

Brazil's performance has been particularly important in 2011 with FDI increasing to 44 billion dollars January and August, which is 157% greater than for the same period in 2010. This is due to new capital contributions and the steep rise in loans between companies.

During the crisis of 2008-2009, many subsidiaries of global corporations returned loans to parent organizations, however, this trend has reversed over the past year.

Colombia received 7 billion dollars, 91% higher than during the first half of 2010 and even higher than the total investment in 2010. The investments have been primarily concentrated in hydrocarbons and mining sectors.

FDI in Venezuela posted a positive balance again of 1.2 billion dollars. However, Argentina, Chile, Mexico and Paraguay show a moderate decline in FDI inflows.

In Central America, all the countries recorded significant growth, with Costa Rica and Panama the main FDI recipients in the sub-region. The Dominican Republic leads in the Caribbean with a 30% increase mainly in the mining sector.

However, Latin American companies which invest abroad -known as ‘trans-Latins’, have seen their investments decline abruptly during the first months of 2011. This is primarily because of Brazil, which posted a negative balance of 10.8 billion dollars.

This clearly indicates Brazilian companies have reduced their investment activity abroad taking advantage of business opportunities in the domestic market and protecting themselves from the uncertainty of the current global situation.

Actually Brazilian trans-Latins parent companies have experienced a strong inflow of capital from subsidiary companies located abroad.

Mexico, the largest investor in the region in 2010, invested an estimated one billion dollars during the first half of the year, which is only 10% compared to the same period in 2010. Foreign investments made by Chilean trans-Latins fell by 30%.

Thee only exception are Colombian trans-Latins which are investing heavily overseas in electricity, water and gas services as well as financial services.