FDI into Latin America and the Caribbean in 2001 declined for the second year in a row, according to the World Investment Report 2002 (1) released today by the United Nations Conference on Trade and Development (UNCTAD). The region received $85 billion in 2001, 11% less than in 2000 and 22% below the peak of 1999, but almost double the average inflows received over the 1990s. This drop in inflows was concentrated mainly in two major host countries, Brazil and Argentina. In Brazil, the privatization programme that brought large flows of FDI in the previous years almost came to a halt. In Argentina, FDI flows, which had been substantial during almost three years of recession, turned negative in the last quarter of 2001. Although very few transnational corporations (TNCs) have decided to pull out, during the first half of this year most have been reluctant to make more investments in the country. At the same time, the crisis has provided an opportunity to acquire Argentine companies with financial difficulties at an advantageous price, as Brazilian State-owned Petrobrás did in its $1.1 billion purchase of a majority stake in the oil company Pérez Compac.
Flows to Venezuela also declined by 24% to $3.4 billion, amid concerns over political and economic stability. However, a majority of the region’s economies are attracting shares of global inflows that exceed their shares in global GDP.
Mexico doubled its inflows, to $25 billion, overtaking Brazil to become the largest FDI recipient in the region for the first time since 1995 (figure). The increase was driven by Citigroup’s acquisition of Banamex for $12.5 billion, the second largest acquisition in the region ever and the third largest worldwide in 2001. This and other acquisitions in the telecom industry have changed the predominant composition of FDI in Mexico from manufacturing to services, which now account for two thirds of all inflows. In Chile, inflows climbed 50% to $5.5 billion, returning to their previous five-year average after a bad year in 2000.
Brazil, in contrast, saw a decline in FDI in services -- especially telecom and financial services, which had attracted large mergers and acquisitions (M&As) by foreign firms in 1999 and 2000 -- and an increase in the manufacturing sector, which has been drawing in substantially larger FDI inflows since the decline of the value of the Real.
The recession in the United States directly affected manufacturing in Mexico and the Caribbean basin, particularly in maquila enterprises exporting to the US. In Mexico, the manufacturing sector received $4.2 billion last year, $4 billion less than in 2001. FDI flows into resource-based activities were especially important in the Andean countries: Bolivia took in $647 million, half of which was in oil and gas extraction, and Ecuador garnered $1.3 billion, 85% of it in petroleum.
Most of the FDI outflows from Latin American countries remain within the region. Chile continued to be the largest investor abroad, with $3.8 billion in outflows, followed by Mexico’s $3.7 billion. Mexican companies are pursuing their expansion into the US, with the food group Bimbo acquiring Orowit for $610 million in January 2002. Another Mexican company, Cemex, in 2000 became the largest TNC in Latin America and #76 worldwide when ranked by foreign assets.
This year’s World Investment Report, which focuses on TNCs and export competitiveness, puts the spotlight on Mexico and Costa Rica because of their phenomenal export growth in recent years. Between 1985 and 2000, the two countries saw investments by TNCs in the manufacturing sector soar over 700%, at the same time as they upgraded from resource-based to medium- and high-tech products. Trade agreements with the US, in Mexico’s case, and a proactive investment promotion policy, in Costa Rica’s, were fundamental to this achievement. But both countries must still increase linkages between export-oriented TNCs and the local economy, the Report says.