ECONOMY-LATAM: Investment Boom Safe from Asian Crisis, Says ECLA

By IPS Correspondents Reprint | | Print |

Gustavo Gonzalez

SANTIAGO, May 4 1998 (IPS) - Direct investment in Latin America and the Caribbean, which set a new record in 1997, accompanied by an unprecedented rise in investment by Latin American countries abroad, will not be affected by the Asian crisis this year, according to a new ECLA report released Monday.

Jose Antonio Ocampo, executive secretary of the Santiago-based UN Economic Commission for Latin America and the Caribbean (ECLA), said direct foreign investment (DFI) in the region, which hit a new high of 50 billion dollars in 1997, was still growing steadily.

“Up to now, the Asian crisis does not seem to have significantly affected these capital flows,” Ocampo said while presenting ECLA’s 1997 report on Foreign Investment in Latin America and the Caribbean.

Michael Mortimore, the head of ECLA’s Investment and Business Strategies Unit, which produced the report, underlined that DFI was the most stable flow of capital into the region in the first quarter of the year.

The figures provided by the regional UN agency are preliminary in nature, and the comparisons with other economies date back to 1996, when DFI totalled around 350 billion dollars worldwide. Developing countries accounted for 133.76 billion dollars of that total.

Latin America and the Caribbean took in 30 percent of those 133.76 billion – 43.58 billion – while China attracted a similar amount.

Asia as a whole – China included – drew 60 percent (84.65 billion dollars) of the developing South’s total DFI, while Africa attracted 4.94 billion and Europe’s emerging economies 571 million.

DFI rose 30 percent in Latin America and the Caribbean in 1997 with respect to 1996.

Meanwhile, Latin American investment abroad totalled 6.22 billion dollars, climbing fourfold in the 1995-97 period. Chilean firms headed the list with 46.7 percent of that total, mainly investing in Argentina and Peru, followed by investment by Mexican firms in the United States, Central America, Argentina, Chile, Cuba and Venezuela.

With respect to DFI flows into the region, Brazil topped the list in 1996 – the last year for which comprehensive statistics are available – with 25 percent of the total, pushing Mexico into second place.

The 1996 figures indicate that Mexico drew 20 percent of DFI, followed by Argentina (10 percent), Chile (nine percent), and Peru and Colombia (eight percent each).

DFI in the Caribbean grew 25 percent in 1996 to a total of 4.52 billion dollars, while DFI in Central America grew 11 percent to 897 million dollars, 44.3 percent of which went to Costa Rica.

Latin America is thus consolidating its newly-won position as a leading magnet for investment, showing its ability to adapt to the changes in the policies of transnational companies generated by globalisation, says ECLA.

Among the factors mentioned by the report as attractive to investors are the region’s macroeconomic stability, the opening and deregulation of trade and finances, and privatisation programmes.

The deregulation of private investment and the regional integration process have also created a favourable business climate, while encouraging investment by national and transnational companies, the report stresses.

ECLA points to a “second wave” of privatisations, which partly explains the rise in DFI in Brazil in spite of the soaring of prices of public assets throughout the region, a result of economic stability and investor demand.

Sales of energy and telecommunications enterprises stand out in the current wave of privatisations, and along with the financial sector they have turned services into one of the most attractive areas for overseas investors.

The report cites a rise in investment in manufacturing industries in Mexico, to meet the demands of the U.S. market through the North American Free Trade Agreement, of which Canada is also a member.

The Southern Common Market (Mercosur) has also drawn sizeable investment in manufacturing, especially in the auto industry, while overseas capital is contributing to the development of the maquila industry (foreign assembly plants in duty free zones) in Central America and the Caribbean.

Commodities continue attracting DFI, particularly the oil sector in Venezuela and Colombia and mining in Argentina, Peru and Chile.

Mortimore pointed out that the region was attractive for the expansion strategies of transnationals in today’s globalised world, in terms of efficiency, access to raw materials, systematisation of production lines and entry to markets.

He stressed that none of these aspects was significantly affected by the Asian crisis, and added that the currency devaluations in that region could even give a slight boost to investment in Latin America and the Caribbean.

The report also says there will be no major impact on the sources of DFI in Latin America, because Japan already lags behind other industrialised powers.

The 20 biggest subsidiaries of transnationals operating in Latin America account for a full 44 percent of the sales of the top 161 large companies. And nine of those 20 are from the United States, 10 are European while only one is Japanese.

In 1996, the United States was also the top investor in the region, mainly due to its influence in Mexico and the Caribbean, while Europe – led by Spain – is enjoying a growing presence.