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15.9mm 11.125”(285.75mm)H
Dropping commodity prices, starting with metals in 2012 and spreading to oil by late 2014, have caused a consider- able reduction in FDI in the region’s natural resources.
(200.02mm) W x 10.375”(263.52mm) H (212.72mm) W x 10.875”(276.22mm) H
Conditions GE SPREAD Limit FDI
around the world, it is expected that foreign direct investment in Caribbe- an tourism will continue for the near future.
INVESTORS PREFER SERVICES
Because industries vary by country, it is also important to consider how invest- ments have changed by industry. The primary industry for foreign investment in 2014 was the services sector. Cap- turing 48 percent of FDI in the region, services outperformed natural resourc- es, at 17 percent, and manufacturing,
at 36 percent. Although some countries, like Colombia and Ecuador, performed better, the natural resources industry experienced an overall decline, largely due to the decrease in mineral prices.
Oil production, which has been an important industry for Latin America, has been affected by the huge— and ongoing—drop in prices since late 2014. There is good news for the region when one considers the direction Latin America needs to take to improve its economies: FDI increased in technology with the medium-high- and high-tech- nology industries receiving 60 percent of overall inflows. A significant portion of these inflows were directed at the automotive industry, which improved investment in Mexico and Brazil.
CHINA’S RIPPLE EFFECT
The recent financial volatility in China is having direct consequences for Latin American countries, due to China’s investment in commodities, particular- ly oil and industrial metals—much of which is supplied by Latin American countries. According to economists
at the University of Texas at Austin, Chinese investments in Latin Amer-
ica reached US $285 billion over the past 13 years. For Guatemala, China’s economic crisis could affect a negotiated investment of US $3.5 billion and a two- year agreement of cooperation between their countries.
The slowdown in China has contrib- uted to the global slump in oil and industrial metal prices, both of which affect Latin America disproportionately. To worsen the situation, China contin- ues to tinker with its own currency in
an effort to lessen the cost of its exports during a global surplus in oil produc- tion. Venezuela, which is heavily depen- dent on the market for oil and currently sits at a 5 percent account deficit due
to the drop in oil prices, could see a continued decline due to the financial crisis, but it is important to note that official investment by China into Latin America stands at only 1 percent of all FDI.
A LOOK AHEAD
FDI continued to decline in 2015, due to the lack of economic growth in the region. Investment in Brazil is ex- pected to drop, but Mexico may see an improvement in inflows due to increas- es in manufacturing and an easing of regulations within the services sector, which will entice more foreign compa- nies to invest. Declines in oil prices and investment in the minerals industry are likely to direct investment elsewhere. Inflows to these regions were projected to drop by as much as 10 percent in 2015, according to ECLAC.
With the exception of a few countries, most notably those in Central America, the amount of FDI has significantly dropped for Latin America and the Caribbean. Political and social upheav- als in the regions have affected the willingness of corporations to invest more money into the area; however, economic strife in the home countries of the multinational corporations (such as with China) may also play a part in the continued decline of FDI into the LAC region, particularly in Brazil, Chile, Uruguay, and Peru.
On the other hand, an improving U.S. economy is expected to pull Mexico along with it for 2016. And public-pri- vate partnerships in Colombia, Guate- mala, Chile, and Peru will strengthen the draw for foreign investors. Coun- tries like Colombia, where oil-linked receipts dropped from 19 percent in 2013 to 7 percent in 2014, will benefit from pulling away from energy-depen- dent sectors. The overall picture shows a region in decline in terms of foreign direct investment, but take a closer look, and gems begin to emerge into the frame.
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Volatile
any economic data since
(425.45mm) W x 10.875”(276.22mm) H
3Q14.
each layout:
Argentina owes billions of dollars to some 500 debtors around the world.
nd hope you have a great holiday.
Brazil has frozen more than US $22 billion in budget spending.
Factoids
Services now capture nearly half of all FDI in the region, while investment in natural resources is declining.
High-tech industries like automotive are responsible for much of the growth in manufacturing FDI.
Despite fears over China’s volatile economy, the Asian giant’s investment in Latin America accounts for only 1 percent of all FDI.
Central America is the only positively performing
region in the LAC countries in
terms of FDI.
24 STRATEGY
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