Foreign direct investment (FDI) flows the Caribbean and Latin America rose 8% to reach $151 billion, lifted by the region’s economic recovery, according to UNCTAD’s World Investment Report 2018.
This was the first rise in six years, but inflows remain well below the 2011 peak during the commodities boom. The turnaround was fuelled by solid global and domestic demand and rising prices for commodities – especially for soy beans, metals and oil, the region’s main exports. Favourable financial conditions also played a role.
“The rebound of FDI in Latin America and the Caribbean, and gradual economic recovery in the larger economies in the region would normally signal a positive FDI outlook,” James Zhan, UNCTAD Director, Division on Investment and Enterprise. “However, substantial downside risks, especially international financial market uncertainties, dampen our expectations for FDI in the region.”
FDI to South America increased by 10% as recessions in two leading economies, Argentina and Brazil, ended. FDI to Brazil increased by 8% to $63 billion supported by a significant influx in the energy sector. In Argentina flows more than trebled, to $12 billion, on the back of the economic recovery and new policies to attract investment and upgrade infrastructure. Investment in Colombia increased by 5% to $14.5 billion, supported by the year-end recovery in oil prices, infrastructure investment and rising domestic demand.
Investments in Central America grew marginally to $42 billion. Despite uncertainty about the future of the North American Free Trade Agreement, inflows to Mexico remained stable at $30 billion, supported by record-high investments in the automotive industry which was up by 32% to $7 billion. Flows to the energy sector could also pick up in the next few years, as foreign companies announced investments in renewable energy projects for a record amount of nearly $5 billion in 2017.
FDI in the Caribbean sub-region grew to $5 billion, driven by flows to the Dominican Republic, up by 48% to $3.6 billion, bolstered by booming investment in trade activities and telecommunication and energy industries.
Outflows from Latin America and the Caribbean bounced back 86% to $17.3 billion in 2017 as regional multinational enterprises (MNEs) resumed their international investment activity. Yet, outflows remained significantly lower than before the commodity price slump. About half the number of purchases and announced greenfield projects were intra-regional, affirming the importance of regional ties in the location choice of Latin American MNE operations.
Investment flows to Latin America and the Caribbean are expected to remain stagnant or decline marginally, at about $140 billion. Economic growth in the region is expected to remain tepid, challenged by many downside risks, including economic and policy uncertainty associated with upcoming elections in some of the largest economies, and possible negative spill-overs from rising interest rates in developed economies and international financial market disruptions.