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LATIN AMERICA: Foreign Investment on the Rise, But Still “Low-Quality”

Daniela Estrada

SANTIAGO, May 5 2010 (IPS) - Foreign direct investment (FDI) flows to Latin America and the Caribbean, which fell 42 percent in 2009 due to the global economic crisis, will grow 40 to 50 percent this year, says a new report released by ECLAC Wednesday.

However, FDI is still concentrated in “low and medium-low technology intensive activities,” showing that the region still has a hard time drawing high-technology investment “and participating in high value-added links in global production chains,” the new report by the United Nations regional agency specifies.

Last year, Latin America took in nearly 76.7 billion dollars in FDI, far below the 2008 record of 131.9 billion dollars, says “Foreign Direct Investment in Latin America and the Caribbean 2009” presented in the Chilean capital.

Worldwide, FDI flows contracted for the second year in a row, dropping 39 percent, the annual ECLAC (Economic Commission for Latin America and the Caribbean) report says.

ECLAC executive secretary Alicia Bárcena said growth prospects in the region, long-term projections and preliminary figures indicate that FDI in the region will total more than 100 billion dollars in 2010.

“We believe that Latin America is still an important destination for investment, because it has commodities, and prices of these products are on the rise,” she said.

But Bárcena acknowledged the U.N. regional agency’s concern over the difficult situation in certain EU countries, like Greece, which is being bailed out to the tune of 146 billion dollars from the European bloc and the International Monetary Fund.

If the Greek crisis expands to Spain, for example, it could have a major impact on FDI flows to Latin America, she warned, while expressing her hope that “the contagion will be contained.”

Mario Cimoli, head of ECLAC’s production and business development division, told IPS that “When you invest in high-technology industries, you are investing in sectors that generate high value-added returns, that can pay better salaries and that bolster a country’s productive and technological capacities.”

That means investment in these sectors “helps foment the growth and development of countries,” said the expert, who added that in order to draw high quality FDI, specific government policies are needed, such as targeted incentives and training of human resources.

With respect to FDI according to subregions, it fell 40 percent in South America and 45 percent in Mexico and the Caribbean in 2009, the report says.

Brazil remains the largest recipient of FDI in Latin America and the Caribbean, with 25.9 billion dollars in 2009, 42 percent less than the year before. It was followed by Chile (12.7 billion dollars), Mexico (11.4 billion), Colombia (7.2 billion) and Argentina (4.9 billion).

The top investors in the region last year were the United States (37 percent of FDI), Spain (nine percent) and Canada (seven percent). The services sector took the largest share of FDI, followed by manufacturing.

Ten percent of FDI came from Latin American transnational corporations, referred to as “trans-latins”.

But FDI flows within Latin America and the Caribbean plummeted 69 percent last year, to 11.4 billion dollars, mainly as a result of a drop in investment by Brazilian companies.

Chile was the region’s largest foreign investor, investing 7.9 billion dollars around the world, followed by Mexico (7.6 billion dollars), Colombia (3.0 billion) and Venezuela (1.8 billion).

The biggest trans-latin firms are Brazilian oil giant Petrobras, with total sales of 101.9 billion dollars last year, and Venezuela’s state-run oil firm PDVSA, with 68 billion dollars. Next on the list are the Itaú-Unibanco bank of Brazil, América Móvil of Mexico and the Brazilian Vale mining company.

The ECLAC report also examines the performance of the automobile and iron and steel industries in the region, in the face of the international economic crisis that began in the United States in 2008.

It concludes that the countercyclical policies adopted by countries like Brazil, which produces 51 percent of the region’s steel, and Mexico, which accounts for 27 percent, helped mitigate the effects of the crisis.