Mon. Dec 9th, 2019

Foreign investment in Latin America grows again after five years

Foreign direct investment (FDI) in Latin America broke in 2018 the global trend and a streak of five consecutive years of falls and registered an increase of 13.2%, to 184.287 million dollars, the Economic Commission for Latin America reported on Wednesday and the Caribbean (ECLAC).

In a global scenario undermined by austerity policies and trade restrictions in the main economic powers, Latin America last year managed to shed the negative foreign investment figures of the last five years thanks to FDI flows that reached Brazil and Mexico .

The executive secretary of the ECLAC, Alicia Bárcena, appreciated the rebound of the figures when presenting in Santiago the report on FDI in the region but recalled that they are still far from the 213,000 million dollars recorded in 2012, in full swing of the Raw materials price.

When analyzing the components of FDI, a 20% decrease in the capital contribution is observed, which is the main indicator of the investment because it symbolizes the interest of the companies to settle in the countries of the region.

The components that underpinned foreign investment in 2018 were the reinvestment of profits, which increased by 16% and explained some 61,000 million dollars of all FDI, and inter-company loans, which rose 138% and contributed some 52,000 million.

Bárcena explained that the reinvestment of benefits is a "symbol of trust" in the country where investments are and indicated that the two countries that stood out in this regard were Brazil and Chile.

Regarding loans between companies, the head of ECLAC considered that it is the most volatile component of FDI and it is often difficult to interpret the purpose of these operations.

One possibility, he explained, is that they serve to underpin companies that go through economic difficulties, as happened in Brazil, where some of their main companies received loans from their subsidiaries abroad.

The report shows great heterogeneity in the region, with 16 countries in which foreign investment increased compared to 2017 and 15 countries in which it decreased.

Much of the increase in FDI in 2018 was due to higher investments in Brazil, which accounts for 48% of the total, and in Mexico, which has 20%.

In Brazil, foreign investment reached 88,319 million dollars, 25.7% more than in 2017, and in Mexico it reached 36,871 million, an annual increase of 15.2%, said ECLAC.

In terms of flows received, Argentina follows, with 11,873 million dollars and an increase of 3.1%, Colombia (11,352 million and a fall of 18%), Panama (6,578 million and an increase of 36.3%) and Peru (6,488 million and a 5.4% drop).

FDI in Central America increased by 9.4% annually due to the momentum of Panama, which received 6,578 million dollars, an increase of 36.3% compared to 2017.

In the Caribbean, foreign investment flows were reduced by 11.4% due to the 29% decline in the Dominican Republic, the main recipient in this subregion.

Regarding the origin of the investments, ECLAC highlighted that in 2018 the trend of recent years was maintained and the main flows of FDI came from Europe, the United States and China.

Looking ahead to 2019, ECLAC calculates a slight decrease of 0.8% of foreign investment in the region, although the first quarter of the year has had positive numbers.

The fall expected by the agency will focus on Brazil, where FDI could drop 15%, while in Mexico it could increase 2.5%, an increase that would be insufficient to compensate for the Brazilian situation.

Bárcena recommended that Latin American countries guide their policies to attract quality foreign investment and not only think about increasing the number of millions invested.

"Policies must be oriented to bring quality FDI, in renewable energy, where there is knowledge, sectors that increase productivity and employment and where sustainable consumption can be advanced," he said.

. (tagsToTranslate) foreign investment (t) (t) Latin America (t) returns (t) later

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