MercoPress. South Atlantic News Agency

FDI in several Latam countries during 2011 marked a historic record

ECLAC Executive Secretary Alicia Bárcena: watch out for the growing repatriation of profits by trans-national corporations

Foreign Direct Investment, FDI, in Latin America and the Caribbean during 2011 reached 153.448 billion dollars, which represents 10% of the global total flows according to a report presented on Thursday by the Economic Commission for Latin America and the Caribbean (ECLAC) in Santiago, Chile.

This is about the largest amount of FDI received by the region so far, as stated in the report entitled Foreign Direct Investment in Latin America and the Caribbean 2011. In 2010, the region received 120.880 billion dollars, whereas in 2009, due to global recession, inflows decreased to 81.589 billion. Until then, the highest record had been registered in 2008, when investments amounted to 137.001 billion.

In 2011, the main FDI recipients were Brazil (66.660 billion, representing 43.8% of total inflow to the region); Mexico (19.4 billion); Chile (17.3bn); Colombia (13.24bn); Peru (7.66bn); Argentina (7.24bn); Venezuela (5.3bn) and Uruguay (2.53bn). For Brazil, Chile, Colombia, Peru and Uruguay it was a historic record.

In Central America FDI increased by 36% compared to 2010, where the amounts received by Panama (2.8bn), Costa Rica (2.1bn) and Honduras (1.01bn) stand out. In the Caribbean, inflows soared by 20% compared to the previous year, with the Dominican Republic at the head with 2.371 billion.

“In spite of the prevailing uncertainty in global financial markets, Latin American and Caribbean economies attracted significant FDI in 2011. These volumes should remain high in 2012,” said ECLAC Executive Secretary Alicia Bárcena.

In 2011, 46% of net income from FDI was due to profit re-investments, whilst the remaining percentage was due to capital contributions and loans among companies. ECLAC points out this underlines trans-national corporations confidence in the region and business opportunities.

According to the report the good performance which took off in 2012 is the result of increased assets accumulated by trans-national corporations in the region and a surge in profits because of the good economic prospects of the region and high international prices for raw materials.

However Eclac points out to a current phenomenon that is increasingly relevant since 2004: the growing repatriation of profits by trans-national corporations investing in the region, a fact that reminds that FDI is not a one way flow. “FDI revenue transferred back to the countries of origin has increased from 20 billion dollars per year between 1998 and 2003 to 84 billion from 2008 to 2010 annually” said Bárcena.

The document underlines that FDI strengthens the production basis of Latin America and the Caribbean. In 2011, 57% of FDI in South America (except Brazil) was directed to the natural resources sector, 36% to services and 7% to manufacturing.

At the other end, 7.8% of FDI received by Mexico, Central America and the Caribbean were oriented to natural resources, 39.7% to manufacturing and 52.5% to services. Meanwhile, 46.4% of FDI in Brazil was for manufacturing, 44.3% services and 9.2% to natural resources.

Investments made by Latin American and Caribbean trans-national corporations -also known as trans-Latins- decreased to 22.6bn in 2011, having reached 44.924bn in 2010. In spite of the decrease, ECLAC underlined that these corporations are still in an expansion phase.

According to ECLAC the downsizing can be mainly explained by Brazil where net borrowings granted by subsidiaries abroad to parent companies increased, whereas capital contributions were cut down, a fact that suggests that Brazilian companies are investing more in their own country.

Chile was the country that invested the most abroad in 2011 (11.82bn), followed by Mexico (9.6bn) and Colombia (8.23bn).

The report also shows that the European Union, as a bloc, is the largest investor in the region. In the last decade, the EU invested an average of 30 billion dollars per year in the region, representing 40% of the total received. EU investments concentrated in South America, are very diverse but strongly relevant to strategic sectors such as electricity and banking.

The 2011 investments’ ranking has the United States leading with 18%; Spain 14%; the Latam and Caribbean region 9% and Japan 8%, among others.

Finally ECLAC estimates that in 2012, FDI flows to Latin America and the Caribbean will maintain high levels. But it warns that if the Euro zone crisis worsens, the flow of investments, especially from Europe- could be reversed.